Problem 2
Use the ideas of consumer surplus and producer surplus to explain why economists say competitive markets are efficient. Why are below- or above- equilibrium levels of output inefficient, according to these two sets of ideas? LO4.2
Problem 3
What are the two characteristics of public goods? Explain the significance of each for public provision as opposed to private provision. What is the free- rider problem as it relates to public goods? Is U.S. border patrol a public good or a private good? Why? How about satellite TV? Explain. LO4.3
Problem 4
What divergences arise between equilibrium output and efficient output when (a) negative externalities and (b) positive externalities are present? How might government correct these divergences? Cite an example (other than the text examples) of an external cost and an external benefit. LO4.4
Problem 4
Explain the two causes of market failures. Given their definitions, could a market be affected by both types of market failures simultaneously? LO4.1
Problem 7
The LoJack car recovery system allows the police to track stolen cars. As a result, they not only recover 90 percent of LoJack-equipped cars that are stolen but also arrest many auto thieves and shut down many "chop shops" that take apart stolen vehicles to get at their used parts. Thus, LoJack provides both private benefits and positive externalities. Should the government consider subsidizing LoJack purchases? LO 4.4
Problem 8
Explain why zoning laws, which allow certain land uses only in specific locations, might be justified in dealing with a problem of negative externalities. Explain why in areas where buildings sit close together tax breaks to property owners for installing extra fire prevention equipment might be justified in view of positive externalities. Explain why excise taxes on beer might be justified in dealing with a problem of external costs. LO4.5
Problem 9
Distinguish between a carbon-tax and a cap-andtrade strategy for reducing carbon dioxide and other so-called greenhouse gases (that are believed by many scientists to be causing global warming). Which of the two strategies do you think would have the most political support in an election in your home state? Explain your thinking.
