a. ?Joe decides to build a chicken coop in his suburban backyard. He has several hens and one rooster. The rooster wakes up his neighbor each morning at 5:00 ?am.
Joe’s chicken coop
creates a positive externality if the neighbor wants to sleep longer but accepts free eggs in exchange for the inconvenience.
creates a negative externality if his chickens do not lay eggs.
creates a positive externality if Joe sells his chickens’ eggs at the local farmers’ market.
creates a negative externality if the neighbor wants to sleep longer and a positive externality if the neighbor is happy to be awaken early each day.
The correct answer and explanation is:
The correct answer is:
creates a negative externality if the neighbor wants to sleep longer and a positive externality if the neighbor is happy to be awakened early each day.
Explanation:
An externality is a side effect or consequence of an activity that affects other parties who did not choose to be involved in that activity. In Joe’s case, the presence of the rooster and the resulting noise early in the morning can create both positive and negative externalities, depending on the preferences of the neighbor.
- Negative Externality (if the neighbor wants to sleep longer):
If the neighbor values a quiet morning and wishes to sleep longer, the rooster’s crowing early in the morning would disturb this. The inconvenience caused by the rooster’s noise is an example of a negative externality. Joe’s rooster is creating a cost for the neighbor who has no control over this disturbance. The neighbor did not choose this situation, but is impacted by it. - Positive Externality (if the neighbor is happy to be awakened early):
On the other hand, if the neighbor does not mind being awakened early, or even enjoys the sound of the rooster’s crowing, this can be considered a positive externality. The neighbor benefits from the rooster’s behavior without directly participating in the activity, such as appreciating the early start to the day. This is an unintended benefit to the neighbor, who might enjoy the rooster’s wake-up call.
In this case, the rooster’s crowing exemplifies the concept of externalities because it affects people other than Joe. However, whether this is a positive or negative externality hinges on the neighbor’s individual preferences.
As for Joe’s egg production, selling eggs at the farmer’s market does not constitute an externality in relation to the neighbor. It’s a market transaction where both parties benefit (Joe earns money, and customers get eggs), but it doesn’t directly affect the neighbor unless there’s an unrelated spillover impact. Similarly, if the hens don’t lay eggs, this would not create a meaningful externality unless it impacts others (e.g., if the neighbor relied on eggs for breakfast).