For each example, write who gets the benefit? Who bears the cost? Is it a positive or negative externality, or not an externality at all?
1. Your neighbor has loud parties late into the night, keeping you awake.
2. Your community has an excellent public school system.
3. A man drives drunk and crashes his car into a tree (the tree is not hurt).
4. A factory in your town pollutes the air.
5. Your neighbor improves her front yard with beautiful landscaping.
6. A student doesn’t study for a test and fails.
7. A few people are talking on their cell phones in a movie theater.
8. Some people don’t take their antibiotics properly and a disease becomes resistant to antibiotic treatment.
9. A student in class asks good questions that help everyone to understand better.
10. You spend a lot of time working out at the gym and jogging, and you start to feel more self-confident.
Explain how externalities can be considered “market failures”.
Explain how the government can discourage negative externalities.