Question

Identify the following situations as an example of a negative or a positive externality:

a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds.

b. Your neighbor paints his house a hideous color.

c. Investments in private education raise your country’s standard of living.

d. Trash dumped upstream flows downstream right past your home.

e. Your roommate is a smoker, but you are a nonsmoker.

Short answer

(a) Positive externality (b) Negative externality (c) Positive externality (d) Negative externality (e) Negative externality

Step-by-step solution

Step1. Concept

Negative externality is when external costs are imposed on third parties.

Positive externality is when external benefits are generated for third parties.

Step2. Explanation

(a) Positive externality as someone else's work is benefitting you.

(b) Negative externality as his house is painted in hideous colors but that leads to your house getting highlighted.

(c) Positive externality as if the country's standard of living improves, it also improves the citizens' standard of living.

(d) Negative externality as the trash dumped flows to your house.

(e) Negative externality as you being a non-smoker would suffer from the roommate's smoke.