Externalities: Any external factor which causes either a benefit or loss to the producers and these benefits or losses do not get reflected in the market price of a good or service and not even reflected in the accounts of the producer, then this is known as externalities. It may be a loss for one party and gain for the other. The positive externality can be said as an external benefit, whereas the negative externality can be said as an external cost.

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Answer 1

Question

Chapter 10, Problem 1P

To determine

Concept Introduction:

Externalities: Any external factor which causes either a benefit or loss to the producers and these benefits or losses do not get reflected in the market price of a good or service and not even reflected in the accounts of the producer, then this is known as externalities. It may be a loss for one party and gain for the other.

The positive externality can be said as an external benefit, whereas the negative externality can be said as an external cost.

Expert Solution & Answer

Explanation of Solution

a. Mr. Chau plants lots of colorful flowers in his front yard.

This is a case of positive externality. The marginal benefit of the individual is less than the marginal social benefit of the activity.

This is because other people in the society also enjoy by the beautiful view of colorful flowers. Therefore, fewer flowers will be planted than that of the socially optimum level.

Conclusion:

Thus, it is a positive externality.

b. The neighbor likes to build bonfires in his backyard, and sparks often drift onto the house.

This is a case of negative externality. The house can catch fire because of the bonfires in the neighbor’s house, so this is a kind of external cost. Therefore, in this case, the marginal social cost is greater than the marginal cost of the neighbor.

As the neighbor is not concerned about the external cost, therefore more bonfires will be built by him than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

c. Maija, who lives next to an apple orchard, decides to keep bees to produce honey.

This is a case of positive externality. The owner of the apple orchid will be benefited by the bees, which are kept to produce honey, because bees will help in pollination.

Therefore, the marginal social benefit will be greater than the marginal benefit to Maija. As Maija does not receive any kind of compensation by forging the external benefit so she will keep fewer bees than the socially optimal level.

Conclusion:

Thus, it is a positive externality.

d. Justine buys a large car that consumes a lot of gasoline.

This is a case of negative externality. Toxic gases emitted by the car in the atmosphere because of the use of gasoline are an external cost. Therefore, the marginal social cost will be greater than the marginal cost incurred by Justine.

Justine ignores the external cost that is involved in buying a car, it means that more cars will be purchased than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

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Answer 2

Question

Chapter 10, Problem 1P

To determine

Concept Introduction:

Externalities: Any external factor which causes either a benefit or loss to the producers and these benefits or losses do not get reflected in the market price of a good or service and not even reflected in the accounts of the producer, then this is known as externalities. It may be a loss for one party and gain for the other.

The positive externality can be said as an external benefit, whereas the negative externality can be said as an external cost.

Expert Solution & Answer

Explanation of Solution

a. Mr. Chau plants lots of colorful flowers in his front yard.

This is a case of positive externality. The marginal benefit of the individual is less than the marginal social benefit of the activity.

This is because other people in the society also enjoy by the beautiful view of colorful flowers. Therefore, fewer flowers will be planted than that of the socially optimum level.

Conclusion:

Thus, it is a positive externality.

b. The neighbor likes to build bonfires in his backyard, and sparks often drift onto the house.

This is a case of negative externality. The house can catch fire because of the bonfires in the neighbor’s house, so this is a kind of external cost. Therefore, in this case, the marginal social cost is greater than the marginal cost of the neighbor.

As the neighbor is not concerned about the external cost, therefore more bonfires will be built by him than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

c. Maija, who lives next to an apple orchard, decides to keep bees to produce honey.

This is a case of positive externality. The owner of the apple orchid will be benefited by the bees, which are kept to produce honey, because bees will help in pollination.

Therefore, the marginal social benefit will be greater than the marginal benefit to Maija. As Maija does not receive any kind of compensation by forging the external benefit so she will keep fewer bees than the socially optimal level.

Conclusion:

Thus, it is a positive externality.

d. Justine buys a large car that consumes a lot of gasoline.

This is a case of negative externality. Toxic gases emitted by the car in the atmosphere because of the use of gasoline are an external cost. Therefore, the marginal social cost will be greater than the marginal cost incurred by Justine.

Justine ignores the external cost that is involved in buying a car, it means that more cars will be purchased than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

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Answer 3

Question

Chapter 10, Problem 1P

To determine

Concept Introduction:

Externalities: Any external factor which causes either a benefit or loss to the producers and these benefits or losses do not get reflected in the market price of a good or service and not even reflected in the accounts of the producer, then this is known as externalities. It may be a loss for one party and gain for the other.

The positive externality can be said as an external benefit, whereas the negative externality can be said as an external cost.

Expert Solution & Answer

Explanation of Solution

a. Mr. Chau plants lots of colorful flowers in his front yard.

This is a case of positive externality. The marginal benefit of the individual is less than the marginal social benefit of the activity.

This is because other people in the society also enjoy by the beautiful view of colorful flowers. Therefore, fewer flowers will be planted than that of the socially optimum level.

Conclusion:

Thus, it is a positive externality.

b. The neighbor likes to build bonfires in his backyard, and sparks often drift onto the house.

This is a case of negative externality. The house can catch fire because of the bonfires in the neighbor’s house, so this is a kind of external cost. Therefore, in this case, the marginal social cost is greater than the marginal cost of the neighbor.

As the neighbor is not concerned about the external cost, therefore more bonfires will be built by him than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

c. Maija, who lives next to an apple orchard, decides to keep bees to produce honey.

This is a case of positive externality. The owner of the apple orchid will be benefited by the bees, which are kept to produce honey, because bees will help in pollination.

Therefore, the marginal social benefit will be greater than the marginal benefit to Maija. As Maija does not receive any kind of compensation by forging the external benefit so she will keep fewer bees than the socially optimal level.

Conclusion:

Thus, it is a positive externality.

d. Justine buys a large car that consumes a lot of gasoline.

This is a case of negative externality. Toxic gases emitted by the car in the atmosphere because of the use of gasoline are an external cost. Therefore, the marginal social cost will be greater than the marginal cost incurred by Justine.

Justine ignores the external cost that is involved in buying a car, it means that more cars will be purchased than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

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Answer 4

Question

Chapter 10, Problem 1P

To determine

Concept Introduction:

Externalities: Any external factor which causes either a benefit or loss to the producers and these benefits or losses do not get reflected in the market price of a good or service and not even reflected in the accounts of the producer, then this is known as externalities. It may be a loss for one party and gain for the other.

The positive externality can be said as an external benefit, whereas the negative externality can be said as an external cost.

Expert Solution & Answer

Explanation of Solution

a. Mr. Chau plants lots of colorful flowers in his front yard.

This is a case of positive externality. The marginal benefit of the individual is less than the marginal social benefit of the activity.

This is because other people in the society also enjoy by the beautiful view of colorful flowers. Therefore, fewer flowers will be planted than that of the socially optimum level.

Conclusion:

Thus, it is a positive externality.

b. The neighbor likes to build bonfires in his backyard, and sparks often drift onto the house.

This is a case of negative externality. The house can catch fire because of the bonfires in the neighbor’s house, so this is a kind of external cost. Therefore, in this case, the marginal social cost is greater than the marginal cost of the neighbor.

As the neighbor is not concerned about the external cost, therefore more bonfires will be built by him than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

c. Maija, who lives next to an apple orchard, decides to keep bees to produce honey.

This is a case of positive externality. The owner of the apple orchid will be benefited by the bees, which are kept to produce honey, because bees will help in pollination.

Therefore, the marginal social benefit will be greater than the marginal benefit to Maija. As Maija does not receive any kind of compensation by forging the external benefit so she will keep fewer bees than the socially optimal level.

Conclusion:

Thus, it is a positive externality.

d. Justine buys a large car that consumes a lot of gasoline.

This is a case of negative externality. Toxic gases emitted by the car in the atmosphere because of the use of gasoline are an external cost. Therefore, the marginal social cost will be greater than the marginal cost incurred by Justine.

Justine ignores the external cost that is involved in buying a car, it means that more cars will be purchased than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

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Answer 5

Chapter 10, Problem 1P

To determine

Concept Introduction:

Externalities: Any external factor which causes either a benefit or loss to the producers and these benefits or losses do not get reflected in the market price of a good or service and not even reflected in the accounts of the producer, then this is known as externalities. It may be a loss for one party and gain for the other.

The positive externality can be said as an external benefit, whereas the negative externality can be said as an external cost.

Expert Solution & Answer

Explanation of Solution

a. Mr. Chau plants lots of colorful flowers in his front yard.

This is a case of positive externality. The marginal benefit of the individual is less than the marginal social benefit of the activity.

This is because other people in the society also enjoy by the beautiful view of colorful flowers. Therefore, fewer flowers will be planted than that of the socially optimum level.

Conclusion:

Thus, it is a positive externality.

b. The neighbor likes to build bonfires in his backyard, and sparks often drift onto the house.

This is a case of negative externality. The house can catch fire because of the bonfires in the neighbor’s house, so this is a kind of external cost. Therefore, in this case, the marginal social cost is greater than the marginal cost of the neighbor.

As the neighbor is not concerned about the external cost, therefore more bonfires will be built by him than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

c. Maija, who lives next to an apple orchard, decides to keep bees to produce honey.

This is a case of positive externality. The owner of the apple orchid will be benefited by the bees, which are kept to produce honey, because bees will help in pollination.

Therefore, the marginal social benefit will be greater than the marginal benefit to Maija. As Maija does not receive any kind of compensation by forging the external benefit so she will keep fewer bees than the socially optimal level.

Conclusion:

Thus, it is a positive externality.

d. Justine buys a large car that consumes a lot of gasoline.

This is a case of negative externality. Toxic gases emitted by the car in the atmosphere because of the use of gasoline are an external cost. Therefore, the marginal social cost will be greater than the marginal cost incurred by Justine.

Justine ignores the external cost that is involved in buying a car, it means that more cars will be purchased than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

Answer 6

Chapter 10, Problem 1P

To determine

Concept Introduction:

Externalities: Any external factor which causes either a benefit or loss to the producers and these benefits or losses do not get reflected in the market price of a good or service and not even reflected in the accounts of the producer, then this is known as externalities. It may be a loss for one party and gain for the other.

The positive externality can be said as an external benefit, whereas the negative externality can be said as an external cost.

Expert Solution & Answer

Explanation of Solution

a. Mr. Chau plants lots of colorful flowers in his front yard.

This is a case of positive externality. The marginal benefit of the individual is less than the marginal social benefit of the activity.

This is because other people in the society also enjoy by the beautiful view of colorful flowers. Therefore, fewer flowers will be planted than that of the socially optimum level.

Conclusion:

Thus, it is a positive externality.

b. The neighbor likes to build bonfires in his backyard, and sparks often drift onto the house.

This is a case of negative externality. The house can catch fire because of the bonfires in the neighbor’s house, so this is a kind of external cost. Therefore, in this case, the marginal social cost is greater than the marginal cost of the neighbor.

As the neighbor is not concerned about the external cost, therefore more bonfires will be built by him than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

c. Maija, who lives next to an apple orchard, decides to keep bees to produce honey.

This is a case of positive externality. The owner of the apple orchid will be benefited by the bees, which are kept to produce honey, because bees will help in pollination.

Therefore, the marginal social benefit will be greater than the marginal benefit to Maija. As Maija does not receive any kind of compensation by forging the external benefit so she will keep fewer bees than the socially optimal level.

Conclusion:

Thus, it is a positive externality.

d. Justine buys a large car that consumes a lot of gasoline.

This is a case of negative externality. Toxic gases emitted by the car in the atmosphere because of the use of gasoline are an external cost. Therefore, the marginal social cost will be greater than the marginal cost incurred by Justine.

Justine ignores the external cost that is involved in buying a car, it means that more cars will be purchased than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

Answer 7

Chapter 10, Problem 1P

To determine

Concept Introduction:

Externalities: Any external factor which causes either a benefit or loss to the producers and these benefits or losses do not get reflected in the market price of a good or service and not even reflected in the accounts of the producer, then this is known as externalities. It may be a loss for one party and gain for the other.

The positive externality can be said as an external benefit, whereas the negative externality can be said as an external cost.

Answer 8

Expert Solution & Answer

Explanation of Solution

a. Mr. Chau plants lots of colorful flowers in his front yard.

This is a case of positive externality. The marginal benefit of the individual is less than the marginal social benefit of the activity.

This is because other people in the society also enjoy by the beautiful view of colorful flowers. Therefore, fewer flowers will be planted than that of the socially optimum level.

Conclusion:

Thus, it is a positive externality.

b. The neighbor likes to build bonfires in his backyard, and sparks often drift onto the house.

This is a case of negative externality. The house can catch fire because of the bonfires in the neighbor’s house, so this is a kind of external cost. Therefore, in this case, the marginal social cost is greater than the marginal cost of the neighbor.

As the neighbor is not concerned about the external cost, therefore more bonfires will be built by him than the socially optimal level.

Conclusion:

Thus, it is a negative externality.

c. Maija, who lives next to an apple orchard, decides to keep bees to produce honey.

This is a case of positive externality. The owner of the apple orchid will be benefited by the bees, which are kept to produce honey, because bees will help in pollination.

Therefore, the marginal social benefit will be greater than the marginal benefit to Maija. As Maija does not receive any kind of compensation by forging the external benefit so she will keep fewer bees than the socially optimal level.

Conclusion:

Thus, it is a positive externality.

d. Justine buys a large car that consumes a lot of gasoline.

This is a case of negative externality. Toxic gases emitted by the car in the atmosphere because of the use of gasoline are an external cost. Therefore, the marginal social cost will be greater than the marginal cost incurred by Justine.