Question 62

The situation describes a negative externality.

Nora's action of leaving leftover bread for pigeons creates an unintended consequence that affects her neighbor, Eva, negatively. This situation exemplifies a negative externality, where one party's actions lead to adverse effects on another party who is not involved in the initial decision.

A) A third-party benefit

This option is incorrect because a third-party benefit refers to a situation where an action positively affects individuals who are not directly involved in the transaction. In this case, while the pigeons benefit from the bread, Eva experiences negative consequences, thus it does not represent a benefit to a third party.

B) A free rider problem

This option is not applicable here, as the free rider problem involves individuals benefiting from resources or services without contributing to the cost. In this scenario, the issue is not about benefiting from a resource but rather about the negative impact on Eva due to Nora's actions.

C) Positive externality

This option is incorrect because a positive externality occurs when an action results in beneficial effects for third parties. While the pigeons may benefit from the leftover bread, Eva is negatively impacted by the mess, which does not align with the definition of a positive externality.

D) Negative externality

This option is correct because it accurately captures the essence of the situation. Nora's decision to feed pigeons leads to a mess that affects Eva's property, creating a negative externality. In this case, Nora's actions impose an external cost on her neighbor without her consent.

Conclusion

The correct answer, negative externality, effectively describes how Nora's actions have unintended adverse effects on Eva's property. All other options fail to accurately represent the nature of the situation, as they either describe positive impacts or do not relate to the consequences experienced by Eva. Therefore, understanding the concept of externalities is crucial in analyzing interpersonal effects stemming from individual actions.