Economics Theory Essay Example

Economics Theory Essay Example Economics Theory Essay Economics Theory Essay Economics Theory Name: Course: Institution: Instructor: Date: Economics Theory The cost of $6 per person in the community is a negative externality. This is an external costs caused by the building of the water park. This is a negative externality because it involves added costs to the community. Additionally, the people within the community where this park will be built are third parties and do not incur costs or benefits directly (Keppler, 2007). These costs are not compensated by the city council. Negative Externality S= MC Equilibrium P S1= MC-X D= MB Q1 Q* Q The per-unit amount of the externality is the amount of the positive or negative externality realized for every unit of good produced by the council. In this case, the product is the water park that will increase the traffic. The negative per-unit amount of externality is $2. When businesses realize increased security at night as well as the surrounding, this will be a benefit from the water park. Additionally, with a benefit of $3 for every person attending the water park, the positive externality is realized (Mankiw, 2011). Therefore, this is a positive externality since the city council will not be refunded the money, and neither will the neighboring surrounding and businesses have to pay for the extra benefits realized from increased traffic and security at night. The per-unit amount for both externalities is $2. One way of solving the negative externality for this project is having the city council compensate for the added costs to the community by reducing some of the services it renders to people. Alternatively, it should also be required the community the same amount of money. Therefore, this can be added back to its marginal costs. For the positive externality, people or community should seek to increase it through means such as pushing for subsidies to have the goods at a cheaper price. This would increase the benefits for the whole community. References Keppler, J. H. (2007). Theory and Measurement of Externalities. University Paris-Dauphine. Mankiw, N.G. (2011). Principles of economics. New York, N.Y: Cengage Learning.