During 2009, the U.S. federal government shut off the water to a huge section of farmland in the California Central Valley to save the endangered Delta smelt fish. As a result of that action, 600,000 of acres of good farmland turned into desert land, about 20,000 farm jobs were lost, and almost 1,000 farmers were put out of business. Conclusion: This is a good example of government trying to create a positive externality.

a. True
b. False

Answer:

false

Explanation:

A good has positive externality if the benefits to third parties not involved in production is greater than the cost. an example of an activity that generates positive externality is research and development. Due to the high cost of R & D, they are usually under-produced. Government can encourage the production of activities that generate positive externality by granting subsidies.

The actions of the government had negative effects on third parties (farmers and businesses). This is an example of negative externality

A good has negative externality if the costs to third parties not involved in production is greater than the benefits.