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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Which of the following is an example of a positive externality?

  1. a. Bob mows Hillary’s lawn and is paid $100 for performing the service.
  2. b. While mowing the lawn, Bob’s lawnmower spews out smoke that Hillary’s neighbor Kristen has to breathe.
  3. c. Hillary’s newly cut lawn makes her neighborhood more attractive.
  4. d. Hillary’s neighbors pay her if she promises to get her lawn cut on a regular basis.

To determine
Classification of positive and negative externality.

Answer

Option “c” is correct.

Explanation

Sub part (c):

The statement “Hillary’s newly cut lawn makes her neighborhood more attractive” is related to positive externality. Hillary’s cut lawn making her neighborhood more attractive is beneficial for the neighborhoods. Thus, option “c” is correct.

Sub part (a):

The statement “Dev mows Hillary's lawn and is paid $100 for performing the service” is related to negative externality. Dev cutting Hillary’s lawn and being paid $100 for performing the services creates a cost. Thus, option “a” is incorrect.

Sub part (b):

Since the discharge of smoke makes the neighbor uncomfortable, it is negative externality. Thus, option “b” is incorrect.

Sub part (d):

The statement “Hillary’s neighbors pay her if she promises to get her lawn cut on a regular basis” is related to negative externality.  Thus, option “d” is incorrect.

Concept

Concept introduction:

Externality: Externality refers to the spillover of benefits or costs to the third party other than the immediate market participants. The negative spillover to the third party is negative externality and positive spillover to the third party is positive externality.

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