Economics: The Basics 1st Edition by Mike Mandel

Exercise 6

Every household produces garbage, some more than others. In town A the local sanitation department will collect all the garbage that households put out. In town B the residents have to pay per bag to have their garbage collected. In all other respects the towns are identical.
a) Is garbage an externality? Explain.
b) In which town would the residents produce less garbage? Explain.
c) Suppose town A finds itself with soaring garbage costs because too many households put out 5 or 10 bags of garbage. To solve this problem the town imposes a new rule saying that households could only put out three bags of garbage. Who would be hurt by this rule?
d) Would you prefer to live in town A (with the maximum number bag rule) or town B? Explain.