Angela Scharf, Chapter 3, Q.7

     This chapter was primarily covering externalities and how the government intervenes in the market. An externality is essentially the relationship between the private costs compared to social costs, or rather people behaving in a way that will impose costs on other people while benefitting themselves without a direct cost. The gap between the private cost and the social cost can be corrected through government taxes. This is one way the government intervenes in the market; if a behavior is generating a bad externality, they will impose a tax to help compensate. This works well in two ways: 1) the government is acting on business actions that will prove detrimental in the future and 2) the tax money can be used to absolve the business's negative behavior through research into substitutes.
     Another more controversial topic regarding externalities is the argument of rights and maximum utility in multiple parties. How does the government decide whether the people (or government) should pay a business to stop its behavior, or whether the business should pay the government (or people) to continue its behaviors? In order to determine the right course of action, the private cost and social cost in both parties is weighed, and acted on accordingly.
     An example they give in the book is the classic story of an obnoxious neighbor. If the neighbor is playing their music at an inconvenient time, their utility could be worth $30, yet you have an important final the next morning and the cost of their annoyances is worth $60. If you give the neighbor $45 to be quiet for the rest of the night, then maximum utility has been reached because each of the parties is better off than they were to begin with. This interaction makes sense, because if it was decided that you had the right to work in silence, the neighbor would have to pay to play their music. Because silence to you is worth $60, the neighbor wouldn't want to pay because their utility is only worth $30. If the obnoxious neighbor stopped playing their music all together because of the cost, then essentially you would be getting silence for free, which is unfair to the neighbor. Similarly, the government weighs the outcomes of imposed taxes on big business externalities.