Question

- Give one example of a negative externality that you have encountered in your life/worklife, describe how that affects you, and give suggestion on what you think should have been done with it.

- Give one example of a positive externality that you have encountered in your life/worklife, describe how that affects you, and give suggestion on what you think need to be done to maintain it.

Answer 1

An example of negative externality could be pollution. Living in a metro city, one would definately have encountered the problem of pollution. It has increased over the years.

This is causing a negative externality. Negative externality is when a third party is paying for the cost of the transaction that occured between two parties.

This pollution could be the industrial pollution in form of smoke which could cause respiratory disease to the ones who live nearby. If I live near the industrial area of the city, this negative externality would affect me. Also if there are no property rights or if the industries have tbe right to pollute, then this would be the cost borne by the citizens.

Taxes in such cases would be one of the ways to reduce the negative externality.

An example of positive externality is vaccination. If one decides to get vaccinated against the communicable diseases, then he is not only preventing himself from the disease, rather he is also helping the community. Here the benefits to the Society are more than the benefits to the individual.

This could be corrected when the government could either provide free vaccination or could subsidise those who choose to vaccinate.