Understanding Externalities: Examples and Explanation
Which of the following is an example of an externality?
a. Antonio’s dog barks loudly during the night, waking his neighbors.
b. Gloria watches a scary movie.
c. Harold sells a book to Cathy, who reads the book and then gives it to James as a gift.
d. Annie purchases a new dress.
Answer:
The waking neighbor, Antonio dog barks loudly during the night
Explanation:
An external is a phenomenon in which external is the effects of purchase or a decision on a person who doesn't have any choice in the event and who's experience was doesn't take in accounts at that time. Externalities have spillover effects. Externalities can be positive or negative, meaning there would be a good or bad result of the happenings. A voluntary exchange may be reduced if external costs don't exist. The person who is affected by negative externalities may have lower utility. Thus, externalities may cause ethical and political problems. Negative externalities are more problematic than positive externalities. Positive externalities are often associated with the free-rider problem. Externalities are mostly defined by poorly defined property rights. Property rights, such as wild animals, houses, air, water, openly freely flow across borders, making it much more difficult to assign ownership.