Eternal_samples - Sample Problems for Externalities and...

Sample Problems for Externalities and Public Goods
1. Why is zero pollution not the best solution for society? Can there be too little
pollution? Why or why not?
2. There are positive externalities from vaccines, but transaction costs are high.
TFU and explain: The government should either force all people to get
vaccinated, or subsidize vaccines to the point where all people voluntarily get
vaccinated.
3. Suppose that the only way to reduce pollution from paper production is to reduce
output. The government imposes a tax equal to the marginal harm from the
pollution on the producer.
a. Show that the tax may raise welfare.
b. A technological change drives down the marginal private cost of
production. Discuss the welfare implications if the output tax is
unchanged.
4. Are broadcast television and cable television public goods? If either is a public
good, why is it privately provided?
5. Under what conditions would garbage dumped in land fills create no externality?
6. Drivers are safer in SUV’s than in regular cars, but other drivers are made less
safe the more SUV’s there are. What possible actions could the government take
to reduce the negative externality from SUV’s? Explain.
7. TFU and Explain: Since billions of people eat cows every day, but very few
people eat whales, cows are more likely to go extinct.
8. Explain why milk producers have a common marketing campaign (Got Milk?),
but soft drink producers do not?
9. Suppose that the activity of consuming oranges generates external benefits.  A
government policy that would tend to encourage efficient consumption of oranges
would be:
a. a tax on the consumption of oranges
b. a subsidy for the consumption of oranges
c. a government limit on the maximum amount of oranges that can be
produced
d. a tax on the production of oranges
e. both b) and c) are correct