Final answer:
Late-night aircraft noise near an airport is an example of a negative externality, while a change in housing price due to aircraft noise is an example of a pecuniary externality. The correct answer is B.
Step-by-step explanation:
The problems of aircraft noise around an airport are an example of a negative externality. Late-night take-offs and landings by aircraft disturb the sleep of homeowners residing near the airport, which is a negative effect on the homeowners who did not consent to the noise pollution. This is an example of a negative externality because it affects a third party outside the market transaction.
An example of a pecuniary externality is option b) A homeowner buying a house at a price that had been lowered due to aircraft noise. In this case, the externality is a change in the price of the house due to the presence of aircraft noise, which affects the market value of the property.
A negative externality refers to a situation where the actions of a firm or individual negatively impact an uninvolved party without compensation, such as noise from aircraft affecting nearby homeowners. A pecuniary externality, on the other hand, typically involves changes in market prices affecting third parties, like home values dropping due to noise pollution.
From an externality perspective, late-night take-offs and landings by aircraft disturb the sleep of homeowners residing near an airport, which is an example of a negative externality. A pecuniary externality involves the changes in market prices due to the economic activities of others. For instance, if a homeowner bought a house at a price that had been lowered due to aircraft noise, this is an example of a pecuniary externality because the house price is affected by the negative externality (the noise), but there is no direct physical effect on the third party.
Negative externalities, like noise pollution from aircraft, occur when the actions of a firm or individual result in harmful effects on an uninvolved party. It's a kind of spillover where those affected are not compensated and do not participate in the market transaction causing the externality. In contrast, pecuniary externalities reflect changes in prices rather than physical effects on third parties.