Lesson 05.02 Externalities

Lesson 05.02 Externalities - have to leave their homes...

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Lesson 05.02 Externalities 1a. This is a negative externality because the bridal shop is taking up the other businesses’ transaction costs. Say that the road sign brings $100 a week for each business. After the road sign is improved, however, the sign brings in $200 a week. Now say it costs $1000 to renovate the road sign. Obviously, the bridal shop is losing out on its own benefits for the short term and helped its competitors in the long run. 1b. This is a positive externality because people are benefiting socially from this event, even though there is a high external cost for the church. 1c. Although this is a positive externality for the local high school, since it will help the buses move faster, it is a negative externality for the commuters in that area of town. The reason is because the construction has created a serious traffic jam, which will make some commuters late for work. As a result, commuters will
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Unformatted text preview: have to leave their homes earlier and prepare themselves earlier than usual so that they wont be late to work. 2a. 2b. The attendees of the block party will choose the loudest volume of music, which is 97 dB. 2c. The volume of music the block party attendees will now choose is 94.5 dB. 3a. 3b. The marginal social benefit curve is higher than the demand curve because the benefits of H1N1 Flu vaccine are numerous (higher work productivity, etc). 3c. The market equilibrium quantity of flu shots isnt socially efficient because it is less than the socially optimally price (which is located where the MSB curve intersects the MC curve). 3d. This solution actually does achieve efficiency because by providing free vaccines to students and employees, the health centers are closing the gap between the Q MKT and Q OPT by giving vaccines to society (although not all of society)....
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Lesson 05.02 Externalities - have to leave their homes...

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