Question

Suppose two neighborhoods with 10 homes each in​ Buffalo, New York are identical except one of them is near a toxic waste dump. If homes near the dump sell for an average of​ $40,000 and the other homes sell for​ $90,000, the external cost of the dump is

Answer 1

The external cost of the dump is $50,000.

Step-by-step explanation:

The external cost of the toxic waste dump can be determined by calculating the difference in average home prices between the neighborhood near the dump and the other neighborhood. In this case, the difference is $90,000 - $40,000 = $50,000.

Therefore, the external cost of the dump is $50,000.

This means that the presence of the toxic waste dump reduces the value of the homes in the neighborhood near it by $50,000 compared to the other neighborhood.