Question

1. Discuss one negative and one positive externality that you have witnessed recently that has not already been used in the book or power points. Who are the third parties affected by these externalities? Why does the externality exist? Is there any possibility of eliminating the externality if it is an external cost? How could government intervene to try to correct for the market failure in these cases?
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10/2/2013 Pollution
2. What is the free-rider problem and what causes it? Give some ORIGINAL examples (ones that you come up with yourself that have not already been discussed in the power point or textbook) of public goods that are subject to the free-rider problem. If we leave it to the private market to pay for public goods, what market outcome would you expect in regard to the examples of public goods that you cited above (i.e., would the good be overproduced or underproduced)? Suggest one idea about how we can correct the problem of public goods? Also, try to give at least one original example/explanation of the Tragedy of the Commons.

Answer 1