Question

Airport traffic is an example of a externality. One way to correct this problem is to impose a tax equal to the externality. This is why many cities have noise ordinances that impose fines and penalties for early-morning and late-evening disturbances than for disturbances at other times of the day.

Answer 1

Answer: Externalities are side effects (good or bad) that occur when a person or a company performs an activity and does not assume all the costs of it, or all the benefits that could be reported. In this way we can distinguish:

Negative externality: Arises when not all the costs of a negative effects are assumed. In these cases, a social cost is generated, since it is the whole society that suffers the consequences of its actions. And the market price does not collect this cost.

Positive externality: Arises from a positive effect that is not reported as a benefit. An example of positive externality that we can mention is scientific research, from which society in general benefits. In these cases, market place do not reflect the real benefits.