Question

All situations that involve non-excludable goods must lead to negative externalities.

Identify if the statement is true and explain why.

Answer 1

Non excludable goods refers to public good that cannot exclude a certain person or group of person from using such goods. As a result, restricting access to the consumption to the non excludable goods is nearly impossible. For example, a public road allows practically everyone to use it regardless of the type of motor vehicle they are using or even if they are just walking.

Externalities refers to the unintended and uncompensated side effects of any human activity. hey are the costs or benefits of economic activities that are not borne by the parties concerned, but are the spillovers to he other parties. If every person or activity were independent of any other person or activity, then ther would be no  externalities. As all human being and all activities are interdependent, externalities are present almost everywhere and in every activity. If an activity of an person causes some unexpected benefit to some other person or group and he cannot claim any compensation from the beneficiary, then the externality is positive. Conversely , when an activity of a person causes some unintended harm or loss to some other person or group and he does not compensate the person or group affected, then the externality is negative.

We typically see externalities associated with non excludable goods, goods which we cannot selectively deny access. In other words, it is not possible to let some people consume the goods while  preventing from others from consuming it. If a good is non excludable or partially excludable, there are positive externalities associated with is production and negative externalities associated with its consumption.