Answer to Question 1:

Does drunken driving involve an externality? If so, is it a positive or negative one?


Drunken driving has a negative externality. The drunk driver is taking into account the risk that he may kill or injure himself or damage his car. But there is also a non-zero chance that the drunk driver may kill or injure someone else or damage other people's property. In making the decision to drive while impaired, the drunk driver is not taking these costs in to account. There are thus obvious external costs of driving while impaired.

Return to Lesson