Consider a housing development built near an existing airport.After the houses are occupied,homeowners complain that the airport imposes a negative externality on them and it should be moved or otherwise limited.Is the airport a negative externality?
A) No, the airport was there first.
B) No, if the original property values reflect the costs imposed by the airport.
C) No, airports are government entities and therefore don't impose costs on individuals.
D) Yes, the airport's noise should be curtailed for the well-being of the homeowners.

Question

Quizplus · Accepted Answer

If the original property values reflect the costs imposed by the airport, then it is not a negative externality. This is because the externality was already internalized in the housing prices. However, if the airport's noise exceeds what was originally anticipated or agreed upon, then the homeowners may have a valid complaint. Moving or limiting the airport may not be the best solution, as airports provide economic benefits and are often necessary for transportation. Alternative solutions may include noise barriers or soundproofing for the affected homes.

Consider a Housing Development Built near an Existing Airport