ECON 200 I. Introduction to MicroeconomicsHomework 5Name:________________________________________[Multiple Choice]1. Which of the following is an example of a positive externality? (c)a. Bob mows Hillary’s lawn and is paid $100 for performing the service.b. While mowing the lawn, Bob’s lawnmower spews out smoke that Hillary’s neighbor Kristen has to breathe.c. Hillary’s newly cut lawn makes her neighborhood more attractive.d. Hillary’s neighbors pay her if she promises to get her lawn cut on a regular basis.2. When the government levies a tax on a good equal to the external cost associated with the good’s production, it ___________ the price paid by consumers and makes the market outcome ___________ efficient. (a)3. The Coase theorem does NOT apply if (c)4. Which categories of goods are excludable? (a)5. Which categories of goods are rival in consumption? (b)a. private goods and club goodsb. private goods and common resourcesc. public goods and club goodsd. public goods and common resources6. Which of the following is an example of a public good? (b)7. Which of the following is an example of a common resource? (d)
[Short Answer]1. Draw a supply-and-demand diagram to explain the effect of a negative externality that occurs as a result of a firm’s production process.The figure illustrates the effect of a negative externality. The equilibrium quantity provided by the market isQmarket. Because of the externality, the social cost of production is greater than the private cost of production, so the social-cost curve is above the supply curve. The optimal quantity for society isQoptimum. The private market produces too much of the good becauseQmarketis greater thanQoptimum.2. What are corrective taxes? Why do economists prefer them to regulations as a way to protect the environment from pollution?
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