Sample final - Dept of Economics University of Iowa Fall...

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Dept of Economics Fall 2010 University of Iowa Professor Sarah Frank Sample Final Problems Suppose the production of deodorant causes pollution (in the transportation of deodorant across the world, in the production of the plastic container, in the disposal of the container, etc.) How can this be considered a negative externality? What positive externality might be associated with the consumption of deodorant? Suppose economists have measured the negative and positive externalities (marginal damage cost and marginal external benefit) and found them to be equivalent. How, then, does the quantity produced in the private market compare with the socially optimal quantity? What is the Deadweight Loss associated with the private market compared with the social optimum? Suppose the market for widgets is perfectly competitive and in long run equilibrium. Suppose a representative firm, Tom s Widget Company (TWC), hires labor in a perfectly competitive labor market. Draw and label graphs describing the initial equilibrium (you need 4 graphs, the labor market, TWC s labor decision, the widget market
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Sample final - Dept of Economics University of Iowa Fall...

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