Match each of the following characteristics or scenarios...

Match each of the following characteristics or scenarios with either the term negative externality or the term positive externality. a. Overallocation of resources. b. Tammy installs a very nice front garden, raising the property values of all the other houses on her block. c. Market demand curves are too far to the left (too low). d. Underallocation of resources. e. Water pollution from a factory forces neighbors to buy water purifiers.

Match each of the following characteristics or scenarios with either the term negative externality or the term positive externality.
a. Overallocation of resources.
b. Tammy installs a very nice front garden, raising the property values of all the other houses on her block.
c. Market demand curves are too far to the left (too low).
d. Underallocation of resources.
e. Water pollution from a factory forces neighbors to buy water purifiers.

Key Concepts

Positive Externality

A positive externality arises when the production or consumption of a good or service conveys benefits to third parties, benefits that are not captured by the market participants. This misalignment leads to the market underallocating resources relative to the socially optimal level, as the full benefits to society exceed the private benefits received by the individuals directly involved.

Negative Externality

A negative externality occurs when the consumption or production of a good or service imposes costs on third parties who are not reflected in the market price. This situation causes the market to overallocate resources toward the good, as producers and consumers do not take the external costs into account, leading to a divergence from the socially optimal level of production or consumption.

Transcript

00:01 For this question, what to match each of the following characteristics and scenarios with either of the term, negative externality or positive externality.

00:11 So that's what we're going to be doing.

00:13 So the first time is the over -allocation of resources.

00:17 So before we start, let's know the difference between positive externality and negative externality.

00:23 So positive externality are the benefits that are received by a third party because of an economic.

00:30 Activity, why the negative externality is like the cost that you suffered by third party due to an economic activity.

00:38 So when you receive a benefit is positive and when you receive a loss, it's negative.

00:44 So knowing that the first question is over allocation of resources and over allocation of resources, this means that when there's more profit, then the firms have more resources to produce, to produce the goods that are previously used to produce other goods.

01:09 So when they have more profits, then it will lead to the reduction in the output of other goods that give more benefits in society.

01:18 So therefore, the over -allocation of resources decreases the benefits to the society because you are allocating way more than you're supposed to.

01:25 So it decreases the benefits in society and it's associated with negative externality.

01:34 See the second scenario is the second scenario is tammy installs a very nice front guarding raising the property values of all the other houses on our block so our garden is very nice and it raised the property values of all other houses on a on a block so since since tammy's guarding maintenance stones are guarding more beautiful in the area that she lives and indirectly adds to the benefits of our enables without our paying for it, they enabled asset values on the other hand increases because of our beautiful surrounding without any cost.

02:23 So this is positive externality because it adds to your benefits without any cost.

02:40 Now moving on to the next one, the market demand curves are too far to the left.

02:45 So it's too low.

02:46 So your market demand curves are too low...

Please give Ace some feedback