Question

Essay question 1-2 paragraphs each please:

Use the idea of external costs to explain why some cities have laws against late-night rock concerts.

Answer 1

External costs means a cost imposed on a third party, a party which is not involved in the transaction. In this case, the performer and the audience are the parties involved in the transaction. The people who did not go to the concern but live in teh neighbouring areas are the third party. Though they did not take part in the transaction, they have to face the cost of high noise pollution. Due to this external cost, the private cost is less than the social cost.

The negative externality results in too much of the quantity being produced at market equilibrium. Government intervention in the form of tax raises the private cost of late night concerts. As a result, the market equilibrium moves closer to social equilibrium as there is deciline in late night concerts.