Question

Question 1

1. 1) What is true for a public good?

   		a. it is provided in optimal amounts by the private sector
   		b. it is diminishable and excludable
   		c. it can only be provided by the government
   		d) it is either provided by the government or can be by the private sector if it is excludable

20 points

Question 2

1. 2) A negative externality results in:

   		a. too much of the good or service being provided
   		b. too little of the good or service being provided
   		c. an external cost to society
   		d. both (a) and (c)

20 points

Question 3

1. 3) a positive externality results in:

   		a. too much of a good or service being provided
   		b. too little of a good or service being provided
   		c. an external benefit to society
   		d, both (b) and (c)

20 points

Question 4

1. 4) In markets other than pure competion:

   		a. firms can affect the prices of their products
   		b. government intervention in these markets would only make the outcomes worse
   		c. there is a supply curve
   		d. the market outcomes are efficient

20 points

Question 5

1. 5) To correct for postive and negative externalities the government could:

   		a. subsidize the production of a product with a positive externality and tax a negative externality in a market
   		b. tax a product with a positive externality and subsidize the production of a product with a negative externality
   		c. do nothing as intervening would make the market for both inefficient
   		d. tax buyers of a product with a negative externality and sellers of a product with a positive externality

Answer 1

1) Answer is C.

Public goods are non-excludable and non-rivalry. Non excludable means no one could be denied the use and non rivalry means consumption by one does not affect the consumption of other person.

2) Answer is D. Both a and c

Negative externality have social cost because it affects society negatively and in negative externality private production is higher than social optimal output.

So there too much production.

3) Answer is D. Both b and c

In case of positive externality there is too little production because private production is less than social optimal production. And positive externality have positive benefit to the society.

4) Answer is A.

In markets other than perfect competition firms could affect their prices or firms have some control over their prices but in case of perfect competition firms can not affect prices. In perfect competition firms are price takers and in other markets firms are price makers.

5) Answer is A.

In case of positive externality government should subsidize the production to increase the production to optimal level and in case of negative externality government should tax the production to decrease to optimal level because in negative externality total production is higher than social optimal and in case of positive externality private production is less than social optimal.

#Please rate positively...thank you