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

a. Birder's neighbor attracting birds

Since you are a bird watcher and your neighbor's actions of putting up birdhouses and planting trees and flowers that attract birds result in a beneficial effect on your bird-watching experience, this is an example of a positive externality.

b. Neighbor paints house a hideous color

Your neighbor painting their house a hideous color negatively affects the aesthetics of your neighborhood and your visual experience, resulting in a negative externality.

c. Investments in private education

Investments in private education that lead to an increase in your country's standard of living provide benefits to society as a whole, through improved career opportunities, higher wages, and other factors. Therefore, this is an example of a positive externality.

d. Trash dumped upstream flows downstream past your home

The trash dumped upstream directly harms the cleanliness and visual appeal of the area around your home, generating a negative externality.

e. Roommate is a smoker while you are a nonsmoker

Your roommate's smoking habit can adversely affect your health as a nonsmoker through secondhand smoke exposure, making this situation an example of a negative externality.