What are the two characteristics of public goods? What is the free-rider problem as it related to public goods? Is U.S. border patrol a public good or a private good? Explain.

Price $40 Marginal Social Cost $36 $32 Supply/ Marginal Private Cost $28 $24 $20 $16 $12 $8 $4 Demand 10 20 30 40 50 60 70 80 90 Quantity 1) Does the above diagram depict a positive externality or a negative externality? 2) What is the market quantity and price? 3) What is the socially optimal quantity? 4) What is the socially optimal price? 5) At the socially optimal price and quantity, what is the consumer surplus? 6) At the socially optimal price and quantity, what is the producer surplus? Remember, producers care about their private costs.| Next, suppose that the government steps in to mandate the socially optimal quantity, but does not allow the price to rise. 7) What is the consumer surplus? 8) What is the producer surplus?

shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. Qs1 is the quantity supplied without social costs. Qs2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity? P Qd Qs1 Qs2 $20 0 10 8 $18 1 9 7 $15 2.5 7.5 5.5 $12 4 6 4 $10 5 5 3 $5 7.5 2.5 0.5

Suppose there are two residents in a neighborhood, and you know both of their demand curves for a public good. What would you have to do in order to figure out what the social demand curve? A.Multiply the two demand curves together   B.Add their demand curves together   C.Subtract the demand of the person with the lower valuation of the public good from the demand of the person with the higher valuation of the public good   D.Subtract the demand of the person with the higher valuation of the public good from the demand of the person with the lower valuation of the public good