Question 1

​Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture
A)​increases the value of other properties in the neighborhood.
B)​increases the value of Josiah's home.
C)​is visually unappealing to Josiah's neighbors.
D)​creates a safety hazard for neighborhood children.

Accepted Answer

A positive externality occurs when a third party benefits from the actions of an individual or group. In this case, if the metal sculpture increases the value of other properties in the neighborhood, then the neighbors are benefiting from Josiah's actions. This is a positive externality. The other choices do not provide a benefit to third parties and therefore do not qualify as a positive externality.

Question 2

​Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture
A)​increases the value of other properties in the neighborhood.
B)​decreases the value of Josiah's home.
C)​is visually appealing to Josiah's neighbors.
D)​creates a safety hazard for neighborhood children.

Accepted Answer

The presence of a safety hazard for neighborhood children may impose costs on others, which is a negative externality. The other options do not create a negative impact on anyone else, so they do not represent negative externalities.

Question 3

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies
A)reflect the fact that restored historic buildings convey a positive externality.
B)reflect the fact that the destruction of historic buildings conveys a positive externality.
C)are likely to worsen the market failure that is associated with historic buildings and the restoration of such buildings.
D)are likely to decrease the well-being of society as a whole.

Accepted Answer

The government policies reflect the fact that restored historic buildings convey a positive externality, meaning that the benefits of restoring historic buildings extend beyond the private owner and positively impact the community as a whole. By providing tax breaks and regulating the destruction of these buildings, the government is taking steps to incentivize the restoration and preservation of historic buildings, which ultimately benefits society.

Quiz 10: Externalities

​Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

​Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture