Question

I would like to get an answer for chapter 5 question 3 of Public Finance and Public Policy. Can an activity generate both positive and negative externalities at the same time? Explain your answer

Answer 1

Yes an activity can generate positive and negative externality at the same. Farming is one such activity that can generate both positive and negative externality at the same time. Farming generates food products and income for farmers which is a positive externality. However to produce products, farmers use variety of fertilizers and spray harmful chemicals to protect the crops. Pesticides sometimes remain in the products and when they are consumed, they could cause serious health issues.

Also the fertility of the land declines over a period of time and and therefore farming can be considered as an activity that can generate both positive and negative externality.