BA 372 Lesson 5 Assignment 6

BA 372 Lesson 5 Assignment 6 - Ashley B. Hilliard...

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Ashley B. Hilliard 258-10-0169 July 5, 2010-October 22, 2010 BA 372 Lesson#5, Assignment 6 1. Both public goods and common resources involve externalities. A. Are the externalities associated with public goods generally positive or negative? Use examples in your answer. Is the free-market quantity of public goods generally greater or less than the efficient quantity? Public goods produce positive externalities. The free-market quantity of public goods is less than the efficient quantity. An example is a fireworks display on the 4 th of July. If one neighbor shoots off fireworks, the other neighbors get to enjoy the display. So, a positive externality is created. However, an inefficiently low quantity is produced because a fee can’t be charged for the firework display since it is a non-excludable good. So, those neighbors who enjoy the display don’t pay for it. The result is that the enjoyment of the neighbors is not taken into account in the private market and an inefficiently low quantity is produced in the free market. B. Are the externalities associated with common resources generally positive or negative?
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This note was uploaded on 02/22/2011 for the course ECON BA 372 taught by Professor Dickliter during the Summer '10 term at Andrew Jackson.

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BA 372 Lesson 5 Assignment 6 - Ashley B. Hilliard...

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