Externality Question

Assignment C: Externality question Scientists have discovered that dog ownership improves the health of families (see http://kb.rspca.org.au/what-arethe-health-benefits-of-pet-ownership_408.html . Hence, governments want to encourage dog ownership. This is an example of an externality.Explain the nature of externalities and explain the difference between a positive and a negative externality.Explain why governments would intervene in the market for dogs using externality theory.Discuss one type of intervention that governments can use to encourage dog ownership. Show on a correctly labelled supply and demand diagram the private market for dogs. Then show the effects of the government intervention on quantity traded and price. Discuss.