Question

case file #2: the late - night food truck
a popular taco truck operates until 2 am in a residential neighborhood, drawing large crowds of customers. the business is profitable, but nearby apartment residents file noise complaints and report difficulty sleeping due to loud music, honking cars, and crowds talking loudly.
analysis:
type of externality: positive / negative (highlight one)
who creates the externality?

whos affected and how?

market failure: is too much or too little late - night food service happening? explain why.

policy solution: suggest one realistic way to fix this market failure.

Explanation:

• Type of externality: Negative. The taco truck's operations (loud music, honking cars, crowds talking) impose costs (difficulty sleeping) on apartment residents not involved in the transaction (buying tacos).
• Who creates the externality: The taco truck business and its customers. The business operates late - night, and customers contribute to noise (talking loudly, car honking).
• Who's affected and how: Apartment residents are affected. They report difficulty sleeping due to noise from the taco truck's operations (loud music, honking cars, crowds talking).
• Market failure: Too much late - night food service is happening from the perspective of the affected residents. The market (taco truck business) does not account for the negative impact (noise pollution) on third - parties (residents). The private cost (for the business and customers) is less than the social cost (including the cost to residents of lost sleep).
• Policy solution: The local government could impose a noise ordinance that limits the volume of music and noise from vehicles (e.g., no car honking) after a certain time (e.g., 10 PM). This would internalize the externality by making the business and customers comply with noise limits, reducing the negative impact on residents.

Answer:

• Type of externality: Negative
• Who creates the externality: The taco truck business and its customers
• Who's affected and how: Apartment residents; difficulty sleeping due to noise (loud music, honking cars, crowds talking)
• Market failure: Too much late - night food service (from residents' view); private cost < social cost (no accounting for noise impact)
• Policy solution: Local government noise ordinance (limit music volume, no car honking after 10 PM)