Question

Identify whether each of the following is a positive or negative externality. Explain your answer.

1. Restoring the Amazon forest can reduce global levels of pollution.
2. Building a nuclear power plant near a housing development.
3. Expanding commuter train service into the suburbs.
4. US exports outdated computers to Nepal for disposal.
5. A city expands the number of public parks it provides to increase the number of trees it has.

Answer 1

(1) Pollution gives rise to a harmful side-effect in society which is borne by the people without being compensated for it. Therefore this is a negative externality.

(2) Nuclear power plant beside residential area gives rise to a hazardous side-effect which is borne by the people staying nearby, without being compensated for it. Therefore this is a negative externality.

(3) Disposal of outdated computer gives rise to a hazardous side-effect in China, which is borne by the Chinese people, without being compensated for it. Therefore this is a negative externality.

(4) Higher number of trees improve environmental quality, for which the people enjoying this additional benefit do not pay anything. Therefore this is a positive externality.