Question

12. Identify the following situations as an example of a negative or a positive externality:
a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds.
b. Your neighbor paints his house a hideous color.
c. Investments in private education raise your country’s standard of living.
d. Trash dumped upstream flows downstream right past your home.
e. Your roommate is a smoker, but you are a nonsmoker.

Answer 1

A positive externality is a situation when a third person is getting a benefit of an action of an individual and negative externality is a situation when the third person is affected by the action of an individual.

a) Positive externality. Neighbor action benefits me as well.

b) Negative externality: It's just hideous and it is affecting me.  

c) Positive externality. a higher standard of living is beneficial for all, not just the students.

d) Negative externality, it is polluting all the stream.

e) Negative externality. I have to deal with the smoke as well.