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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

Consider two ways to protect your car from theft. The Club (a steering wheel lock) makes it difficult for a car thief to take your car. Lojack (a tracking system) makes it easier for the police to catch the car thief who has stolen it. Which of these methods conveys a negative externality on other car owners? Which conveys a positive externality? Do you think there are any policy implications of your analysis?

To determine
Positive and negative externality for adopting car-protecting methods.

Explanation

Club and lojack are the two methods introduced for protecting the car from theft. But the effects of both are different. Lojack method conveys a positive externality. That means, an adoption of this method does not create any cost to others cars. The thieves do not know which car uses this method of protection, so it does not create any adverse impact on other car owners. But the club method conveys a negative externality to the other car...

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