Question

Consider two ways to protect your car from theft. The Club is a conspicuous steering wheel lock that makes it difficult for a thief to take a car. Lojack is a secret tracking system that makes it easier for police to catch a thief who steals a car on which it is installed.
If a car thief encounters a car with the Club and a car without it, the car with the Club imposes a________externality on the car without the Club. A policy implication of this result is a______those who use the Club.
If a car thief encounters two cars without the Club, but the car thief fears a Lojack system might be installed in one of the cars, the car with the Lojack system imposes a_______externality on the other car. A policy implication of this result is a_______those who use the Lojack technology.

Answer 1

Answer and Explanation:

According to the given situation,

The car with the club enforces on the car without the club a negative externality if a robber experiences a car with the club and a car without them. A policy implication of that result is a tax on those who use the club.

If a car thief reaches two cars even without club, however the car thief is afraid to build a lojack system in one of cars, the car with the Lojakc system forces on the other car positive externality. A resulting policy consequence is a subsidy for those who use the Lojack system.