Question IV The lack of trout is a negative externality As long as anyone likes to fish there for any reason That is a cost.But what is the inefficiency that results? The price of Aluminum is below its real cost of production So some people use aluminum when,all costs considered,it would be cheaper To use steel or wood or fiberglass or... ·A net loss Alternatively,I don't cool my factory in some other way That would have avoided the problem And would cost me less than it saves the fishermen Warm water could also be a positive externality As a few students pointed out,possibly all swimmers In which case the price ofaluminum could be inefficiently above its real cost of production Lowering the price of aluminum is a pecuniary externality A negative externality to competitors,positive to their customers The two effects cancel,so it does not produce an inefficiency Workers working,aluminum being consumed,are costs But they are not external costs,because You have to pay for both So take them into account in your decisions Question IV • The lack of trout is a negative externality • As long as anyone likes to fish there for any reason • That is a cost. But what is the inefficiency that results? • The price of Aluminum is below its real cost of production • So some people use aluminum when, all costs considered, it would be cheaper • To use steel or wood or fiberglass or … • A net loss • Alternatively, I don’t cool my factory in some other way • That would have avoided the problem • And would cost me less than it saves the fishermen • Warm water could also be a positive externality • As a few students pointed out, possibly all swimmers • In which case the price of aluminum could be inefficiently above its real cost of production • Lowering the price of aluminum is a pecuniary externality • A negative externality to competitors, positive to their customers • The two effects cancel, so it does not produce an inefficiency • Workers working, aluminum being consumed, are costs • But they are not external costs, because • You have to pay for both • So take them into account in your decisions