Explain whether each of the following is a positive or negative externality. • S

Question

Explain whether each of the following is a positive or negative externality.

• Smoking on campus exposes students to secondhand smoke.

• College graduates add to the nation's supply of skilled workers and add to productivity.

• Biotech firms invent new medicines.

• Using energy-saving light bulbs reduces the pollution from electricity-generating plants.

• Crowded freeways with heavy truck usage expose the surrounding communities to increased health risks.

• Restoring the Amazon forest can reduce global levels of pollution

Explanation / Answer

POSITIVE EXTERNALITY is an economic transaction through which third party gets benefited without having to pay for it.

NEGATIVE EXTERNALITY is an act through which third party has to bear the harmful effects of the act, without actually involving into the act.

1. Smoking on campus exposes students to secondhand smoke is a NEGATIVE EXTERNALITY. because the the smoke produces the harmful effect on third party.

2. College graduates add to the nation's supply of skilled workers and add to productivity is a POSITIVE EXTERNALITY because nation is being benefited by college graduate's knowledge and their skill sets.

3. Biotech firm invent new medicines is a POSITIVE EXTERNALITY because inventing new medicine serves a social cause of curing more diseases. The third party people get benefited through the transaction.

4. Using energy-saving light bulbs reduces the pollution from electricity-generating plants is a POSITIVE EXTERNALITY because this act serves a social cause and whole nation is benefited through it.

5. Crowded freeways with heavy truck usage expose the surrounding communities to increased health risks is a NEGATIVE EXTERNALITY because this transaction is causing harm to the communities surrounding the freeways.

6. Restoring the Amazon forest can reduce global levels of pollution is a POSITIVE EXTERNALITY since it serves to benefit all of the earth beings by reducing global pollution.

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