Question

News Flash: The U.S. government decides to eliminate all federal safety feature requirements on all automobiles, trucks, etc. (i.e., all vehicles). Citing the cost burdens such features place on car makers, policymakers from both political parties hailed this as win-win for both the manufacturers and consumers who will find new car prices coming down.

Identify 3 externalities (any combination of positive and negative is acceptable) which likely would result from this policy change. Briefly discuss whom will incur the cost/benefit of each externality. Be sure to clearly state the primary activity before discussing the externalities.

Answer 1

As the price will come down, positive externality faced other than consumers and the producers are:-

1) Since the price will come down the disposable income will increase and the demand for other things will go up. So that will have a positive impacton the people.

But the negative externality will be faced by:-

3) Pedestrian- Since safety requirements wont be there, padestrians may face negative externality. Safety requirements not only keep the people in the veheicle but also the people walking on the road. There may be incidents will may hurt the pedestrian due to no safety measures taken by the consumer or producer.

4) Higher level of pollution- This will create alot of negative externality as the safety measures wont be there to reduce the pollution. This will have impact on the air quality which will not only effect the human beings but also animals and the plants.