Understanding Externalities and Their Impact on Society

The video discusses externalities, using Tony's story to illustrate negative and positive impacts on the community. It highlights the pollution caused by a paper factory and the resulting market distortion. Government intervention corrects the market by internalizing costs, leading to cleaner water and a balanced supply-demand. The tragedy of the commons is explained, and solutions like public awareness and regulation are suggested. The video concludes with a call to apply these concepts to increase electric car usage.

What is a negative externality as illustrated by the hotel and paper factory?

• A government subsidy

• A direct transaction between two parties

• A cost imposed on a third party

• A benefit received by a third party

How did the local government address the pollution caused by the paper factory?

• By increasing the production of paper

• By reducing the price of paper

• By enforcing the installation of filters

• By closing the factory

What happens to the supply curve when a factory internalizes its social costs?

• It becomes vertical

• It shifts to the left

• It remains unchanged

• It shifts to the right

Which of the following is NOT a method to combat negative externalities?

• Creating public awareness

• Regulation and fines

• Assigning property rights

• Increasing production

What is one way governments encourage the use of electric cars to reduce emissions?

• By providing financial incentives

• By increasing road tolls

• By banning petrol cars

• By reducing taxes on petrol