What can we do to deal with the externalities associated with public goods and common resources? Government intervention can potentially raise economic well-being. Private markets will correct for the gain or loss to consumer surplus. Government intervention can completely eliminate the free-rider problem. Private markets will lead to an efficient allocation of resources.

Explain why there are no markets for public goods briefly.

Knowledge creates positive externality; therefore, governments should intervene in the education sector. What is the intervention action of governments for efficiency to gain from external benefits? Please explain each of these interventions with a clear example for each.

Fill in the blanks: There is ____________ in an economy with positive externality. This problem can be dealt with by providing a _______ to the individual(s) creating the positive externality.

What exactly is a Pigovian tax? Give some instances of how the Pigovian tax can be used to tackle environmental issues.

Suppose there are only two consumers in the market for a public good. The figure to the right shows marginal benefit lines for a public good for the two individuals, Andrew (A) and Brenda (B). Use the line drawing tool to draw and label the social marginal benefit line. Make sure that the line extends from quantity level 0 to 10 as the private marginal benefit lines do. Carefully follow the instructions above, and only draw the required object. Marginal Benefit, Marginal Cost ($) 20- 18- 16- 14- có + 2- 0- -O 0 1 MC 2 3 4 5 6 7 8 9 Quantity of a Public Good MBA MBB 10 11 12 Q

In a market with a negative externality, like houses being painted with lead paint, the quantity produced in the market in a competitive will be than the quantity that maximizes total surplus. higher lower the same as

Market demand is MWTP= 60 - 2Q. Market supply is MC = 27 + Q. Each unit transacted results in a $Q external cost. How much is the Pigouvian tax that results the socially optimal amount of production? Enter a number only, no $ sign.

Externalities can be ________ by collective (i.e.) ________ action. a. enhanced // market b. internalized // market c. internalized // government d. externalized // government

If the production of a good yields a negative externality, then the social-cost curve lies ________ the supply curve, and the socially optimal quantity is ________ than the equilibrium quantity. What are the fill in the blanks?