Tammy installed a set of wind chimes in her backyard. She enjoys listening to the musical tones when the breeze hits them. Her neighbor Steven also enjoys the chimes, but her other neighbor Sally hates the constant noise. Tammy's wind chimes:
A) create a negative externality for Steven and a positive externality for Sally.
B) are not related to the issue of property rights since all parties are homeowners.
C) are an example of an efficient market since the benefits to one party are balanced by costs to another party.
D) are a public good because all three parties can hear the wind chimes.
E) create a positive externality for Steven and a negative externality for Sally.

Question

Quizplus · Accepted Answer

The wind chimes in Tammy's backyard are an example of a positive externality for Steven because he enjoys listening to the musical tones. On the other hand, they are a negative externality for Sally because she hates the constant noise. Therefore, the best answer is E, which states that the wind chimes create a positive externality for Steven and a negative externality for Sally.

Tammy Installed a Set of Wind Chimes in Her Backyard