Question

1- First question

Externalities Homework

Answer the following questions. All answers must be typed.

Suppose coal burning firms are emitting excessive pollution into the air. Suggest two ways the government can deal with this market failure.

If I neglect or refuse to cut the grass on my front lawn, what are the externalities involved? Suggest two ways the government might deal with this issue.

Why does the government subsidize the purchase of college educations, but not the purchase of hamburgers?

Which of the following are public goods? Why?

Airbags

Pencils

City streetlights

Elementary schools

Medical schools

Contact lenses

Dresses

2-question

ELASTICITY OF DEMAND

HOMEWORK ASSIGNMENT

Pick ten (10) specific items of clothing (“white, button-down, fitted, frilly blouses, moderately priced” and not “blouses”) that you regularly purchase and/or have purchased in the last thirty days. [Not shoes, jewelry, or handbags.] For each of the items, describe the item, and then answer the following three questions, explaining your answers in detail. (You should have thirty answers. Please type your answers or write very clearly.)

What is your price elasticity of demand for each of these items of clothing? Visualize price going up 25 percent, and your response. [Your choices are: perfectly elastic, very elastic, mildly elastic, unitary elastic, inelastic, very inelastic, perfectly inelastic.] Explain why? Be specific in your explanation.

What is your income elasticity of demand for each item of clothing? Visualize your income going up 25 percent, and your response. [Your choices are: high income elastic, unit income elastic, low income elastic, zero income elastic, negative income elastic.] Explain why? Be specific.

What is your cross price elasticity of demand for each item of clothing? Pick another, related good (some substitutes and some complements) and visualize its price going up 25 percent, and your response with your original item. [Your choices are: perfectly elastic (positive number), very elastic (large positive number), elastic (small positive number), zero cross elastic, inelastic (small negative number), very elastic (large negative number), perfectly elastic (negative number).] Explain why? Be specific.

Sample Answer:

Item # 1: “white, button-down, fitted, frilly blouses (that I wear to work regularly)

price elasticity of demand. If the price of white, button-down, frilly blouses went up by 25%, I would buy less of these blouses over the course of the year, but most likely my demand would go down by less than 25%. This is because I wear these blouses almost every day because they are a good combination of being feminine and making me look pretty, yet still appear very professional and business-like. So my demand for this product would be inelastic.

income elasticity of demand. If my income went up by 25%, I would probably use my extra income to buy other types of more casual clothing and not extra white, button-down, frilly blouses, of which I have many. So my income elasticity of demand for this product is close to zero,

cross-price elasticity of demand.   If the price of pink, blue and other colored button-down, frilly blouses went up by 25%, then my demand for white, button-down, frilly blouses would go up considerably because the two goods are close substitutes. White is my ‘fall-back’ color that matches all my business suits. While I would not like to only wear white blouses, I already have some colored blouses in my wardrobe, that I can mix in. So my cross elasticity of demand is very elastic (with a positive number.)

Answer 1

Suppose coal burning firms are emitting excessive pollution into the air. Suggest two ways the government can deal with this market failure.

This negative externality can be handled by taxing the firms that creates the pollution. By taxing, it will increase their private cost of production and consumption, thus reducing the amount of coal that is used to be burned creating less output and less pollution. Also by taxing, not only will it create less production, but the tax money can be used to reduce other taxes and issues. Another way the government can control pollution is through restriction. The government can place a limit on the output of coal being produced. This is preferred by producers,

. If I neglect or refuse to cut the grass on my front lawn, what are the externalities involved? Suggest two ways the government might deal with this issue.

This is a negative externality where the government may give you a summons or ticket depending if the property is owned or not

Why does the government subsidize the purchase of college educations, but not the purchase of hamburgers?

Because the government wants to promote the use of attaining a higher education and make it possible for everyone by offering subsidize, where as a burger is a private good of choice that is not an investment on the future of citizens education for a better country. The subsidize, loan, is handled through the government thus making it a public good if loans are used.

Which of the following are public goods? Why?

a. Air bags

b. Pencils - Private Goods - Produced by companies, can be bought, is property of an individual

c. City streetlights - Public Goods - Provided by the government, non - rival (one person’s consumption is not another person’s loss) available for everyone use, within the benefit and use of everyone for free

d. Elementary schools - Public Goods - Provided by the government, for free, every child has the right to attend

e. Medical schools - Private - Through choice, not everyone can attend, The price and admissions makes it exclusive, expensive tuition makes it private.

f. Contact lenses - Private Good - Created by firms,

g. Dresses - Private Good