Answer to Question #155988 in Microeconomics for Noushin

Question

Identify each of the following externalities and explain why they are an

externality.

a.after eating a burger you vomit on your best friend

b.a cyclone causes the price of bananas to increase

c.your mobile phone goes off during the lecture

d.a firm pours chemical wastes into the river killing the fish

e.you visit the doctor and get a flu vaccination

f.tension in the Middle East increases the price of petro

Answer 1

Externalities occur when producing or consuming a good cause an impact on third parties not directly related to the transaction. Externalities can either be positive or negative. They can also occur from production or consumption. Positive externality occurs when consuming or producing a good causes a benefit to a third party. Negative externality occurs when consuming or producing a good causes a cost to a third party. Let's identify each of the following externalities:

a) after eating a burger you vomit on your best friend, - according to the definition of the externality above, it is a negative consumption externality;

b) a cyclone causes the price of bananas to increase, - according to the definition of the externality above, it is a negative consumption externality;

c) your mobile phone goes off during the lecture, - according to the definition of the externality above, it is a negative consumption externality;

d) a firm pours chemical wastes into the river killing the fish, - according to the definition of the externality above, it is a negative production externality;

e) you visit the doctor and get a flu vaccination, - according to the definition of the externality above, it is a positive consumption externality;

f) tension in the Middle East increases the price of petro, - according to the definition of the externality above, it is a negative consumption externality;