Asked by Michael Frank on Apr 25, 2024
Verified
When a man invests in controlling weeds and trash that tend to accumulate in his yard, both he and his neighbors benefit from his action. Is an externality associated with his private decision? If so, explain its effect, and determine whether the efficient level of weed control occurs when the individual invests in weed control.
Externality
Action by either a producer or a consumer which affects other producers or consumers, but is not accounted for in the market price.
Weed Control
The process or methods used to prevent or reduce unwanted plant (weed) growth that competes with desired plants in agricultural or horticultural operations.
Private Decision
Choices made by individuals or businesses that primarily affect themselves and are guided by personal preferences or interests.
- Comprehend the principle and consequences of positive externalities on market results.
Verified Answer
GJ
Gayleen Jones7 days ago
Final Answer :
When a man invests in weed and trash control and his neighbors benefit, but do not contribute to the effort, then too little investment will be made. The level of investment (weed and trash control) will be determined where his demand (marginal private benefit curve) intersects his marginal cost of control curve. Call this level of control q1. Since others benefit, there is a positive externality which means that the efficient level of weed and trash control q2 is above the actual level.
Learning Objectives
- Comprehend the principle and consequences of positive externalities on market results.