Joe decides to build a chicken coop in his suburban backyard. He has several hens and one rooster. The rooster wakes up his neighbor each morning at 5:00 am. Joe’s chicken coop: _. a. creates a negative externality if his chickens do not lay eggs. b. creates a positive externality if Joe sells his chickens’ eggs at the local farmers’ market. c. creates a positive externality if the neighbor wants to sleep longer but accepts free eggs in exchange for the inconvenience. d. creates a negative externality if the neighbor wants to sleep longer and a positive externality if the neighbor is happy to be awakened early each day.
The correct answer and explanation is:
Correct answer: d. creates a negative externality if the neighbor wants to sleep longer and a positive externality if the neighbor is happy to be awakened early each day.
Explanation:
An externality is a side effect or consequence of an activity that affects other people who did not choose to be involved in that activity. Externalities can be positive (benefits to others) or negative (costs imposed on others).
In this scenario, Joe’s rooster wakes up the neighbor every morning at 5:00 am. This early noise could disturb the neighbor’s sleep, especially if the neighbor does not want to wake up that early. In that case, the rooster’s crowing represents a negative externality—a cost to the neighbor caused by Joe’s activity (raising chickens), which the neighbor did not agree to and does not benefit from.
On the other hand, if the neighbor enjoys being woken up early or finds it useful, the same situation could be seen as a positive externality. This highlights that externalities are often subjective—what one person sees as a nuisance, another might see as a benefit.
Answer (d) is correct because it recognizes both possibilities:
- Negative externality: If the neighbor values sleep and dislikes being disturbed by the rooster.
- Positive externality: If the neighbor enjoys the early wake-up or sees it as a helpful start to the day.
Other answer choices are not as precise:
- (a) confuses the issue; egg production isn’t relevant to the externality caused by noise.
- (b) is a private market activity, not necessarily an externality.
- (c) involves a private transaction (eggs for silence), which internalizes the externality rather than leaving it unaccounted for.
Thus, (d) best captures the economic concept of externalities by considering both perspectives.