Suppose a local coffee shop in the downtown area decides to purchase a neighboring abandoned lot and convert it into a garden area with outdoor seating.
(a) Does this decision create an externality? If so, what kind?
(b) Despite the city's positive response to the coffee shop's renovation, other businesses in the area have not followed suit in renovating the many decrepit buildings and abandoned lots. How might the presence of an externality be in part the cause of this?
(c) In response to the lack of effort on the part of businesses to renovate the downtown area, city council members to take action. What are some ways that the city government could promote this kind of revival?