Question

Discuss the impact of drones to the quiet enjoyment of property.

Answer 1

Use of drones disturbs people who want to enjoy their property quietly, without noise, interference or disturbance. Therefore, use of drones has negative externality in production, which generates an external cost. This shifts the private marginal cost (MPC) curve leftward to social marginal cost (MSC).

In following graph, equilibrium outcome is at point A where private marginal benefit (Demand = D) curve intersects MPC with equilibrium price P0 and equilibrium output Q0. Efficient (optimal) outcome is at point B where Demand intersects MSC with higher efficient price P1 and lower efficient output Q0.

The negative externality, if not internalized, generates a deadweight loss of area ABC, which can be eliminated by a Pigouvian tax of BE per unit.