Question

Which of the following is an example of an externality?

(x) cigarette smoke that permeates an entire restaurant

(y) a flu shot that prevents a student from transmitting the virus to her roommate

(z) a beautiful flower garden outside of the local post office

Select one or more:

a. (x), (y) and (z)

b. (x) and (y) only

c. (x) and (z) only

d. (y) and (z) only

e. (y) only

Answer 1

Ans(A)

Externality means cost and benefit impose by one person on other who didn't choose to incur that cost amd benefit.

Basically it is third party effect.

(x) cigarette smoke by one person in a restaurant obviously affecting other persons sitting in the restaurant.

So this is case of negative externality. ie cost put on other person.

(y) flu shot that a student is using for himself also benefits his roommate. So this is case of positive externality.

(z) a garden gives aesthetic value to neighbours. A good and fresh environment.

So it benefits other without any effort made by them.