Positive and negative externality in production or consumption

Positive and negative externality in production or consumption

Question 1

a) Define public goods, private goods, common resources and club goods. Give an example of each.
(6 marks)

b) What is a negative externality in production and how will this affect the optimal price and quantity in a market? Discuss the effect with the aid of a diagram. In your analysis identify and discuss:

• The competitive market price and quantity.
• The size of the externality.
• The optimum/efficient outcome in terms of price and quantity.
• What are two examples of negative production externalities?

 

Question 2

You are required to research a real life example of a positive externality in production. Select 1 media article published after April 1 2013 that discusses a positive externality in production in a market. Analyse what has happened in this market using the microeconomic analytical skills that you have learnt so far in this course.

What potential remedy is suggested in the article? If there is no suggestion, and you were in charge of government policy in the market how would you remedy this externality? Suggest one remedy that you judge is appropriate and explain how this remedy would work. Use a fully labeled diagram(s) and reference and attach a hardcopy of the article that you have selected
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