Question

Please describe and show by means of graphs examples of positive and negative externalities. Make sure to indicate Qs in all cases and draw a conclusion.

Answer 1

Positive externality occurs when any activity of one person benefits others which means social benefit > private benefit i.e. primary classes organized by government in open area where one could join. This will benefit the whole society by raising overall literacy. Government provide subsidies to people to raise market quantity to social optimum level.

Negative externality occurs when production by one individual harms others where private cost < social cost i.e. it occurs when production by a producer extracts its dump into the river which is the only source of water for whole community. Government tax producers such that they can reduce their production from private efficient to social optimum.