Question

Positive and negative externalities of production and consumption

Answer 1

(i) Positive Externality in Consumption:

An example of this is vaccination. The welfare of any person in a particular neighbourhood depends not only on whether he is vaccinated but also on whether the people in the said neighbourhood have been vaccinated so that the contagious diseases are not spread.

(ii) Negative Externality in Consumption:

The welfare of any person in a particular neighbourhood depends not only on his avoidance of riding a noisy motor cycle, but also on other people’s avoidance of doing this.