An example of a positive production externality is found here: this example centers on the production of hydro-electricity. You may or may not believe the argument that hydroelectric power generation creates positive external benefits to society. The authors argue that the benefits arise out of safety (relative to coal burning and nuclear options) and the creation of recreation areas behind the needed dams.
INSTRUCTIONS: Identify a positive externality in consumption via example, and if possible include a link to a source. You are allowed to “make one up” and not include a web link, just be sure the work is yours. Note you are required to include a supply and demand graph, it must be view able without opening of any attachments.
QUESTIONS:
1.Identify the impacted markets, where the externality arises and who is impacted by the externality. In the pollution examples the externality arises in the market for a good being produced, where a by product of that production is pollution. The impacted parties are those who also consume (a dirtier) environment. Include a supply and demand graph in your posting, i.e. displayed in your posting not only available with a link.
2.Discuss the difference between the best outcome for society and the best outcome for the involved individuals.
3.Create two reasonable polices that may be enacted to encourage the market to ‘not fail’. I.e. what structures or incentives/penalties might the government put in place to lead the market toward a socially optimal outcome. Show the impacts of each of the two policies graphically – best to use a changed version of your graph from the above question.
IMPORTANT: This is a chance to be creative, and a bit more optimistic than just talking about pollution.you are required to include a picture within your post, i.e. readable and view able without anybody clicking anything once they are in your post.
