Question

Explain a positive and negative externality that you have recently consumed. Please relate your answer to the characteristics of elasticity. Why does the government have to get involved when an externality is present in the market?(Please not the same answer as other questions already posted.)

Answer 1

Externality exists when an economic activity has an effect on third party or people who are not directly related to the action. It can be positive or negative externality that people come across in daily lives. Example for positive externality is providing subsidies or environment protection laws which will benefit the entire society. Negative externality includes pollution and drunkenness which causes social disorder while the former causes health issues in people. The government plays a key role in managing or utilizing the impact of the externality. Several subsidies and laws are formulated in this regard to facilitate the public in dealing with externality.