When there is a positive externality associated with the watering of one's lawn, the free market results in:
A) not enough lawn watering.
B) too much lawn watering.
C) the socially optimal level of lawn watering.
D) government subsidies for lawn watering.

Question

Quizplus · Accepted Answer

If there is a positive externality associated with lawn watering, it means that the benefits of lawn watering extend beyond the individual who does the watering. For example, if a well-watered lawn improves air quality or provides beauty to the neighborhood, these benefits are not reflected in the price that the individual pays for the water or the effort to water their lawn. In a free market, individuals make decisions based on their own costs and benefits, and without the full benefits being realized, individuals will likely underinvest in lawn watering. Therefore, the result is not enough lawn watering.

When There Is a Positive Externality Associated with the Watering