Multiple Choice
Which of the following would most likely constitute a negative externality affecting free resources?
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7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following is a positive externality associated with the construction of the Hetch Hetchy Reservoir?
A
Improved public health due to increased access to clean water
B
Reduced recreational opportunities in the area
C
Increased pollution from construction activities
D
Higher water prices for local residents
Verified step by step guidance1
Step 1: Understand the concept of a positive externality. A positive externality occurs when a third party benefits from an economic activity without paying for it.
Step 2: Analyze each option to determine if it represents a benefit to third parties not directly involved in the construction of the reservoir.
Step 3: Identify that 'Improved public health due to increased access to clean water' benefits the community at large, including people who do not pay for the reservoir, which fits the definition of a positive externality.
Step 4: Recognize that 'Reduced recreational opportunities' and 'Increased pollution' are negative externalities because they impose costs on others.
Step 5: Note that 'Higher water prices for local residents' is a direct cost to consumers, not an externality, since it affects those who pay for the service.
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