Question

EC 101 Chapter 8 & 17 Review Questions 30 points 9. Name one way to overcome the inefficiency that is created from a negative externality. (3 pt.) a. Name one way to overcome the inefficiency that is created from a positive externality b. Briefly explain why a positive externality has a negative impact on society.

Answer 1

1. Overcoming from negative externality needs government intervention as well as public awareness for example traffic congestion where individuals can become more law abiding and follow traffic rules and government too can impose penalties for non compliance and propose measures to decongest.
2. Overcoming positive externality like walking down on road to avoid traffic congestion can also create inefficiency like excessive crowding on roads making trespassing cumbersome. This can be avoided by building multiple bypass roads and effective marking for tresspassers to ensure there is no congestion eithwr ways.
3. Sometimes positive externality like zero unemployment has negative impact in long run as this creates higher disposable incomes and causes increased consumption and demand for domestic and luxurious goods pushing the prices up such that inflation soars and creates hyperinflation at times making it unsustainable.