Question

Explain why zoning laws, which allow certain land uses only in specific locations, might be justified in dealing with a problem of negative externalities. Explain why in areas where buildings sit close together tax breaks to property owners for installing extra fire prevention equipment might be justified in view of positive externalities. Explain why excise taxes on beer might be justified in dealing with a problem of external costs.

Answer 1

Answer:

Explain why zoning laws, which allow certain land uses only in specific locations, might be justified in dealing with a problem of negative externalities.

Zoning laws prevent certain economic activities from clustering around other areas where they would cause negative externalities.

For example, zoning laws prevent heavy polluting industry from locating close to residential areas, because the inhabitants of these areas would be greatly affected by a negative externality (pollution) otherwise.

Explain why in areas where buildings sit close together tax breaks to property owners for installing extra fire prevention equipment might be justified in view of positive externalities.

If an urban area has many buildings clustered together, the risk of fire is higher because if a fire broke out, it would likely spread quickly to other buildings. Giving a tax break to property owners who install extra fire protection is an incentive to reduce the risk of the area.

Explain why excise taxes on beer might be justified in dealing with a problem of external costs.

Beer, like any other alcoholic beverages, has an important negative externality on public health. People who drink too much often develop chronic diseases that are costly to healthcare systems.

Excises taxes are a way to reduce the impact of that negative externality, by making beer more expensive, and like that, reducing its consumption.