Zaanse Schans —The Historic Dutch Village

EconEye Admin

8 months ago

The historic Dutch village of Zaanse Schans, famous for its windmills, attracts millions of tourists—2.6 million last year alone—despite having only 100 residents. Tourists trample gardens, invade privacy, and cause overcrowding that diminishes everyone’s enjoyment. The local council will charge each tourist €17.50 ($20.50) beginning next spring.—bbc.com

Answer the following questions to check your understanding of the story.

What type of externality is described in the news clip?

a) Positive production externality

b) Negative production externality

c) Positive consumption externality

d) Negative consumption externality

Wrong! - Is the externality in the news clip a positive externality? Does the externality in the news clip arise from production?

Well Done! - A negative consumption externality is a cost that arises from consumption and that falls on someone other than its consumer. Tourists create a consumption externality by reducing the enjoyment of other visitors and disturbing local residents.

How will the tourist fee address the externality problem in Zaanse Schans?

If €17.50 is equal to the externality created by a tourist, _____________.

a) tourist numbers will not change because of the town’s fame

b) an efficient number of tourists will visit the town

c) residents will reap an external benefit

d) tourists will stop trampling on gardens and invading the privacy of residents

Wrong! - Does the fee stop bad tourist behavior or change the number of visitors? Do residents gain an external benefit when the town charges a tourist fee?

Well Done! - Tourists pay the private cost of transportation to Zaanse Schans. With the additional €17.50 tourist fee, they will be required to pay the external cost of their visit. Faced with paying the total cost, fewer tourists will visit and the outcome will be efficient.

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