1. Externalities are market imperfections. A free market cannot resolve the adverse outcome of externalities, thus requires intervention of the government.<\/p>\n
a. Provide one example for each of the following cases.<\/p>\n
i. Negative production externality<\/p>\n
ii. Positive production externality<\/p>\n
iii. Negative consumption externality<\/p>\n
iv. Positive consumption externality<\/p>\n
b. In the following diagram, AB is the demand for a good (or private marginal benefit curve) and CD is the supply curve (or private marginal cost curve).<\/p>\n
i. Identify the private market equilibrium (is it 1,2,\u20268 or 9?)<\/p>\n
ii. Identify Social Marginal Cost or Social Marginal Benefit (choose from AD, CD, EF, \u2026. etc) and socially optimum equilibria in each of the cases of 1 (a). (Choose from 1 \u2013 9)<\/p>\n
Diagram Description automatically generated<\/p>\n
2. The government imposes Pigouvian taxes to resolve adverse impact of externalities by driving the equilibrium from a private equilibrium to a socially optimum equilibrium. Identify the Pigouvian tax in the case of negative consumption externality.<\/p>\n
3. List major developments in legal doctrine, business environment and government actions in the each of the following two periods.<\/p>\n
a. From civil war to the Great Depression<\/p>\n
b. After the Great Depression<\/p>\n
4. Consider the Aggregate Demand (AD), Short run Aggregate Supply (SRAS) and Long run Aggregate Supply (LRAS) curves drawn on the panel of Price Level and Output.<\/p>\n
a. Illustrate a recession<\/p>\n
b. Illustrate a boom<\/p>\n
c. Explain \u2018Policy Debate\u2019<\/p>\n
d. Using separate diagrams show the changes in the economy if the government follows each strand of the policy debate.<\/p>\n
e. Which strand do you support?<\/p>\n
f. Why?<\/p>\n
—————<\/p>\n
1. Externalities are market flaws. A free market cannot resolve the negative consequences of externalities, necessitating government action.<\/p>\n
a. Give one example for each of the following situations.<\/p>\n
i. Negative externality in production<\/p>\n
ii. Positive externality in production<\/p>\n
iii. Negative externality of consuming<\/p>\n
iv. Consumption externality that is positive<\/p>\n
b. In the picture below, AB represents the demand for a good (or the private marginal benefit curve), while CD represents the supply curve (or private marginal cost curve).<\/p>\n
i. Determine the private market equilibrium (is it 1,2,…8, or 9?)<\/p>\n
ii. Determine the Social Marginal Cost or Social Marginal Benefit (from AD, CD, EF,…. etc.) and the socially optimum equilibria in each of the situations of 1. (a). (Select a number between 1 and 9)<\/p>\n
Diagram Description was generated automatically.<\/p>\n
2. The government imposes taxes.<\/p>\n","protected":false},"excerpt":{"rendered":"
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