Consider The Following Scenario: The City Council Has Just A

Considerthe Following Scenario The City Council Has Just Approved The

Consider the following scenario: The city council has just approved the construction of a water park in your town. You are responsible for studying the impact of the new water park on the local economy and the surrounding community. Write a paper of approximately 500 words that addresses the questions below. You know that the water park will increase the traffic flow in the streets around the water park. There are both businesses and neighborhoods adjacent to the increased traffic flow. The cost to the community is estimated to be $6 per person. What kind of externality is this? Why? Graph the market for water park business, labeling the demand curve, the social-value curve, the market equilibrium level of output, and the efficient level of output. What is the per-unit amount of the externality? You know that the water park will have events in the evening. This will increase both foot traffic and street traffic at night. You believe this will improve the safety of the surrounding businesses, with an estimated benefit of $3 per water park attendee. What kind of externality is this? Why? Create a new graph illustrating the market for water park business for these two externalities. Label the demand curve, the social-value curve, the market equilibrium level of output, and the efficient level of output. What is the per-unit amount of both externalities? Discuss both government and private solutions that would result in an efficient outcome. Format your paper using West Writing Style Handbook guidelines. Include a minimum of two sources, which may consist of readings from the University Library, your text, and other selections.

Paper For Above instruction

The construction of a new water park in our town presents a multifaceted case for examining externalities—an economic concept that highlights the unintended side-effects of business activities on third parties. Two primary externalities are associated with this development: the congestion caused by increased traffic and the enhanced safety resulting from evening events. Analyzing these externalities reveals opportunities for government and private intervention to promote social efficiency and maximize benefits while minimizing costs.

First, the increased traffic flow around the water park, which imposes an estimated cost of $6 per person to the community, characterizes a negative externality. This externality arises because the additional traffic leads to congestion, increased pollution, and wear and tear on infrastructure, all of which impose costs on residents and local businesses not reflected in the water park’s private costs or benefits. Economically, this externality represents a spillover of costs from the producer and consumers directly involved in the water park activity to the broader community.

To visualize this, one can graph the market for the water park's services with the demand curve (reflecting consumers’ private willingness to pay) and the private supply curve (representing internal costs). The social-value curve, which incorporates the external costs, would lie above or below the demand curve depending on whether externalities are negative or positive. In this case, the externality is negative, and the social value curve would lie below the private demand curve. The market equilibrium, where supply equals demand, typically results in too much activity from a societal perspective—meaning the level of output exceeds the efficient level. The per-unit external cost here is the $6 per person, representing the marginal external cost imposed by additional visitors.

Secondly, the evening events at the water park bring about a positive externality—improved safety—estimated to benefit $3 per attendee. This externality benefits local businesses by reducing crime risk and enhancing the neighborhood’s attractiveness during nighttime hours. It's a positive spillover, as the added safety is enjoyed by others not directly paying or involved in the water park activities.

To model these two externalities simultaneously, a new graph can be constructed with the demand curve and a social value curve that accounts for both external costs and benefits. Since one externality is negative and the other positive, the social value curve will shift depending on the magnitude of external costs and benefits, bringing the efficient level of output closer to the socially optimal point. The external benefit of $3 per attendee should increase the perceived value of the water park, while the external cost of $6 per person leads to overuse without intervention.

Addressing these externalities involves both government and private solutions. For the negative externality of traffic congestion, government measures such as imposing congestion charges or traffic management policies could internalize external costs, encouraging the water park to reduce excess traffic or promote alternative transportation. Additionally, private solutions like implementing parking fees or offering incentives for carpooling can also reduce external congestion. For the positive externality of safety, government can incentivize safety initiatives or partner with the water park for community safety programs, effectively subsidizing the external benefit. Private entities might also enhance security measures or community engagement efforts to maximize safety benefits, aligning private incentives with social welfare.

In conclusion, externalities associated with the new water park—both negative (traffic congestion) and positive (night-time safety)—require careful analysis and strategic intervention. The optimal policy mix might include regulatory measures, subsidies, or market-based solutions that internalize external costs and benefits, leading to an efficient and socially beneficial outcome. Recognizing these externalities allows policymakers and private stakeholders to create a balanced development plan that enhances community welfare while controlling unintended adverse effects.

References

• Mankiw, N. G. (2021). Principles of Economics (9th ed.). Cengage Learning.
• Samuelson, P. A., & Nordhaus, W. D. (2010). Economics (19th ed.). McGraw-Hill Education.
• Ostrom, E. (1990). Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge University Press.
• Tietenberg, T., & Lewis, L. (2018). Environmental & Natural Resource Economics (11th ed.). Routledge.
• U.S. Department of Transportation. (2019). Urban Traffic Congestion and Its Externalities. Federal Highway Administration.