Dina drives to work on Interstate 294 at 90 MPH, well in excess of the 65 MPH speed limit. Sandy is behind her, going 85 MPH. A state trooper pulls Dina over and gives her a speeding ticket. Sandy continues driving. If Dina had not been speeding, the trooper would have ticketed Sandy. In terms of externalities, this story shows that
A) the 10 MPH difference defines the difference bewteen a negative and positive externality
B) Sandy enjoys a positive externality
C) Dina suffers a negative externality
D) Dina's driving habits created a negative externality for Sandy
E) Sandy's driving habits created a negative externality for Dina

Question

Quizplus · Accepted Answer

Sandy benefits from Dina's action of speeding more significantly, as it diverted the trooper's attention away from Sandy, who was also speeding but at a lower speed. This is a classic example of a positive externality for Sandy, as she avoids a potential speeding ticket without any effort or cost on her part.

Dina Drives to Work on Interstate 294 at 90 MPH