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Problem_Set_2-Spring2014_SOLN

Problem_Set_2-Spring2014_SOLN - UWM Econ 328 Professor...

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UWM Professor Grant Econ 328 Spring 2014 NAME ___________________________________ * Show all work, including basic calculations, to receive partial credit. * Due at 11am on Thursday, March 6 2014. No late work, no exceptions. * Must be typed (graphs can be drawn in but are pretty easy to create in ppt or excel) and stapled * Non-typed or non-stapled work will not be graded. 1) Positive Externalities In class, we showed that for goods associated with a negative externality, the efficient quantity of exchange is lower than that which is determined by the market. We also showed that this result holds regardless of whether the externality is consumption-based or production-based. Demonstrate graphically that the opposite holds with a positive externality. Create TWO graphs that show that goods associated with a positive externality (one for a consumption and one for a production externality), the efficient quantity of exchange is higher than that which is determined by the market. Label each with an appropriate example (like we came up with in class).
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