Chapter 10, Problem 1CQQ

To determine

Classification of positive and negative externality.

Answer to Problem 1CQQ

Option “c” is correct.

Explanation of Solution

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.

Economics Concept Introduction

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.