Let’s sort the following eight items into private costs, external costs, private benefits, or external benefits. There’s only one correct answer for each of questions a–h.
a. The price you pay for an iTunes download
b. The benefit your neighbor receives from hearing you play your pleasant music
c. The annoyance of your neighbor because she doesn’t like your achingly conventional music
d. The pleasure you receive from listening to your iTunes download
e. The price you pay for a security system for your home
f. The safety you enjoy as a result of having the security system
g. The crime that is more likely to occur to your neighbor once a criminal sees a “Protected by alarm” sticker on your window
h. The extra safety your neighbor might experience because criminals tend to stay away from neighborhoods that have a lot of burglar alarms