Your neighbor John has a barking dog. Which of the following statements is true?

A. It does not create any externalities because you do not own the dog.

B. It can create negative externalities by disrupting your sleep and can also create positive externalities by discouraging intruders.

C. It does not create any externality because John bought the dog from a shelter.

D. It creates only a negative externality by disrupting your sleep.

B

Explanation:

An externality is a side effect (good or bad) that occur when a person or a company performs an activity and does not take in account all the costs or all the benefits of it. In this case, you neighbor is not taking in account that his barking dog affects other people; he is not considering all the costs of having a barking dog

If you neighbor has a dog for discouraging intruders, then he knows about the benefit of having a barking dog and then this would not be an externality. But if he has a dog because he likes dogs, then he could create a positive externality because he is not considering the benefit of having it (discouraging intruders).

Most people have dogs because they like them, we can assume that your neighbor also has a dog for this reason. Then, it is option B.

The answer is B, because it might get more negative and can be trying better in sleep