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Name five ways in which government intervenes in the free market.
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Contrast private versus public goods.
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Describe the free rider problem. Provide several examples.
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On what does the economic difference between public goods and private goods rest?
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The market demand curve for private goods is what sum? How does this differ from the market demand for a public good.
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Illustrate the optimal quantity of a public good.
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What is the benefit-cost decision rule.?
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The best way to make government more efficient is to always reduce government spending. Agree or disagree?
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What is the idea behind externalities?
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Provide a negative externality example. Illustrate the problem and indicate where equilibrium is in a free market. Is this optimal?
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Provide a positive externality example. Illustrate the problem.
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Explain the Coase Theorem and its implications for government intervention into the market.
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What is the importance of assigning property rights in the Coase Theorem?
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How might the Coase Theorem break down?
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A second approach to internalizing externalities relies upon a legal framework of liability laws. Describe this framework.
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Illustrate how direct controls can force new firms to incur costs associated with pollution control.
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Explain and illustrate how Pigouvian taxes can be used to internalize externalities.
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Illustrate how Pigovian subsidies can be used to internalize positive externalities.
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Why does the U.S. provide free vaccines to children?
