PSa 5 - Market Failures.pdf - DEPARTMENT OF ECONOMICS ECON1000 Principles of Economics Problem Set 5 Market Failures 1 Provide and explain two examples

PSa 5 - Market Failures.pdf - DEPARTMENT OF ECONOMICS...

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1. Provide and explain two examples each of goods or services that provide positive externalities and negative externalities. Positive Externalities: Air freshener in a shared room benefits the room-mate; When your friends study more, it creates a resource for you to call upon in your own preparation. Negative Externalities: a loud game of dominoes near a classroom disturbs the class; Integration Thursd ays causes congestion near the Student’s Union. 2. Watch the following YouTube video advertising Axe body spray: . ( If you are viewing this on a computer screen, you can access the video by ctrl+click directly on that link. ) What is the market failure being illustrated? Let’s call the man who sprayed the Axe , “man #1”, the man who was ravished by the woman, “man #2”, an d the last man to appear, dressed in leather, man #3. Since some of the fumes from man #1’s spraying remained in the elevator, man #2 was the beneficiary of those fumes upon entering the elevator. So he enjoyed a positive externality from the action of man #1.
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