Microeconomics 11. Public Goods and Externalities

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

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