The Impact of a Public Building Project on a Local Store

Understanding the Impact of a Public Building Project on a Local Store

When a public building project reroutes the freeway away from a local shopping mall where a store is located, it can have significant consequences for the store owner. In this scenario, Max owns a store in the mall, and the change in traffic flow due to the project results in fewer people coming to the mall and, consequently, to Max's store.

Negative Externality:

A negative externality, in economic terms, refers to a situation where the production or consumption of a good or service has negative effects on a third party that is not directly involved in the transaction. In this case, the building project causes a decrease in foot traffic to the mall, impacting Max's store and resulting in a loss of customers and revenue for Max.

As a result of this external factor, Max experiences a negative impact on his business, highlighting the concept of negative externality in business economics. It showcases how actions or decisions that have external effects can affect businesses and individuals beyond the immediate parties involved.

Overall, the example of the public building project rerouting the freeway away from the mall serves as a clear illustration of how external factors can influence the success and operations of a local store, demonstrating the interconnected nature of economic activities.