Attempts 3 Keep the Highest 3 / 4 E 1. Externalities - Definition and examples An externality arises when a firm or person engages in an activity that affects the wellbeing of a third party, yet neither pays nor receives any EI compensation for that effect. If the impact on the third party is beneficial, it is called a externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. Adjust one or both of the curves to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should drag the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should drag the demand curve to reflect the social value of consuming the good. Othe private value, then you should drag the demand curve to reflect the social value of consuming the good. Supply Demand EI Supply PRICE (Dollars per unit) Demand QUANTITY (Units) than the of government intervention, the market equilibrium quantity produced will beQUANTITY (Units) =1 With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be socially optimal quantity. than the Which of the following generate the type of externality previously described? Check all that apply. Eleanor has planted hundreds of flowers in her front yard, beautifying the neighborhood both for herself and for her neighbors. The local airport has doubled the number of runways, causing additional noise pollution for the surrounding residents. A leading software company has decided to increase its research budget for inventing new open-source technologies. O Your roommate Kyoko has bought a puppy that barks all day while you are trying to study economics. Grade It Now Save & Continue Continue without saving FEB A G tv