Question

Give an example of a negative externality that adversely affects health outcomes in the United States (you may not pick second-hand smoke, but any other is acceptable). Explain why it qualifies as an externality. What are some policy approaches that we can use to offset the costs?

Answer 1

One such negative externality is playing loud music at night. If a household plays loud music at night, then it could mean that others won't be able to sleep. This could negatively affect their health outcomes. This could also affect their productivity at workplace. The reason why this qualifies as an externality is because playing loud music incurs a cost that is not accounted by the person who is playing loud music. The cost can be measured in terms of negative health outcomes and/or productivity at work due to lack of sleep. The govt can impose a regulation that a household should not play loud music beyond a certain decibel limit at night. If the regulation is violated, then a fine can be imposed on the offender.