Externalities and the "take home" problems

There are two problems (I think, I don't have the questions in front of me) that deal with externalities. We didn't talk about those in class.

First thing: I will accept any response as correct on those, so don't sweat it.

Second thing: You should give it a good guess.

Here's the lowdown on externalities:

Externalities are costs or benefits that are passed on to a "third party". There are usually two parties to a transaction: a buyer and a seller. But sometimes there are third party costs or benefits.

A negative external cost: something like pollution. I may not be buying the stuff that a polluter is selling, but I have to breathe the polluted air.

A positive external benefit: when society gains by having children educated or immunized so that they are productive and healthy citizens.

Sometimes when there are significant benefits, when left to the private sector not enough of the good will be provided. The case is made that the government can step in and help provide the good. (Which is what we observe with education.)

Similarly, with negative external costs, the government puts regulations on how business firms can operate (i.e., limit pollution emissions).

I hope this is helpful.

JJ