Question

Identify the following scenarios as either positive or negative externalities.
a. You are a beekeeper. The neighboring farm uses a pesticide that harms your bees.
b. You moved to the country for some peace and quiet. Your new neighbor is a hunter and does target practice all day long.
c. The Excelsior scholarship allows more people to attend college, raising the community's standard of living.
d. The car at the stop light next to you is blasting Country music.

Answer 1

• A positive externality refers to the benefits that a third party gains as a result of an activity or an action performed by an individual or a group or an organisation.
• A scenarios that leads to positive externality is :

c. The excelsior scholarship allows more people to attend college. This will raise the whole communitys standard of living. This is a positive externality as the community of people who are the third parties benefit's as a result of this scholarship.

• A negative externality is said to occur when an action or an activity performed by an individual or an organisation for its own benefits harms the third parties who are not directly involved.
• The various scenarios that can cause negative externalities are :

a. You are a beekeeper. The neighbouring farm uses a pesticide that harms your bees. This is a negative externality as the actions of the neighbouring farm is harming the beekeepers business.

b. You moved to the country for some peace and quiet. Your new neighbour is a hunter and does target practice all day long. This creates a disturbance for the person who shifted in search of peace. Hence it is a negative externality.

d. The car at the stop light next to you is blasting country music. This creates noise pollution which harms other people. Hence it is a negative externality.