Question

An externality arises when a firm or person engages in an activity that affects the wellbeing of a third party, yet neither pays nor reccives any compensation for that effect. If the impact on the third party is beneficial, is called a negative/positive externalily The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equllibrium price and quantity for this good With this type of externality, in the absence of government intervention, the market equilibrlum quantity produced will be greater/less than the socially optimal quantity Which of the following generate the type of externality previously described? Check all that apply. A microbiology lab has published its breakthrough in swine flu research. Shift one or both af the curves to reffect the presence af the externality. If the sociel cost of producing the good is not equal to the private cost, then you should shft the supply curve to reffect the social costs of producing the good; similary, if the social vslue of producing the good is aot equal to the private value, the you should shift the demand curve to reflect the social value of consuming the good Your flatmate Eric has bought a bird that keeps you up at night with Its chirping Bob has planted several trees in his backyard that increase the beauty of the nelghbourhood, especlally during the autumn oliage season The local airport has doubled the number of runways causing additional noise pollution for the surrounding residents. OUANTITY (Units)

Answer 1

If the impact of third party is beneficial then it is called positive externality.

A) When social cost and private cost are not equal then supply curve shifts depicting social cost.

In this D is the demand curve and S is the initial supply curve. SC is the social cost.

B) When social cost and private cost are not equal social value of consuming good is shown as follows:

Here in the above diagram, demand curve shifts depicting consumption of good.

1. Microbiology lab breakthrough swine flue is Positive externality.

2. Bird brought which keeps on chirping at Night is Negative externality

3. Planting of trees is positive externality

4. Creating noise pollution is negative externality.