Externalities
Write a post describing a real-world example of a negative externality.
*Be specific about the difference between the private and social cost associated with the activity that creates the externality.
*Describe how the difference between social and private costs impacts the amount of the good/activity provided in equilibrium.
*Relative to the social optimum, is there too much or too little of the good provided in equilibrium?
*Provide your best guess of the size of the externality (in terms of dollars).
*How can the government “fix” the problem created by the externality (achieve the social optimum in equilibrium)?
Example: When people litter, they are imposing a cost on other people who are not directly involved in the activity that generated the pollution. Cities and businesses have to pay people to clean up the streets, or sweep parking lots because others don’t take the time to throw their trash away. Even in the mountains on a backpacking trip, you will see litter next to a beautiful lake in the mountains. Everyone who has to see that litter, and eventually the person who will pack it out, has to pay an extra cost due to activities they were not directly involved in.
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