Question

⦁ a local drama company proposes a new neighborhood theater in san francisco. before approving the permit, the city planner completes a study of the theater's impact on the surrounding community. ⦁ one finding of the study is that theaters attract traffic, which adversely affects the community. the city planner estimates that the cost to the community from the extra traffic is $5 per theater ticket. what kind of externality is this?

Answer 1

This is a negative externality. Since the cost of the traffic being in the community is not being borne by the theatre company itself, it is negative. The community as a whole is having to pay for the extra $5 in costs that will be accrued as a result of selling each ticket.