Directions and Expectations:
• For each question, write a minimum of three paragraphs with a minimum of four sentences per paragraph. That is an expectation of a minimum of 12 sentences per essay.
1. Explain/define and thoroughly discuss negative externalities, positive externalities, and network externalities. Why do they lead to inefficiency and government intervention in the market? Why are some government policies to deal with externalities efficient and others not?
2. According to a report from the U.S. Census Bureau, ‘the average [lifetime] earning of a full-time, year-round worker with a high school education are about $1.2 million compared with $2.1 million for a college graduate.’ This indicates that there is a considerable benefit to a graduate from investing in their own education. Tuition at most state universities covers only about two-thirds to three-quarters of the cost, so the state applies a Pigouvian subsidy to college education.
First, explain/define and thoroughly discuss Pigouvian taxes. Then, if a Pigouvian subsidy is appropriate, is the externality created by a college education a positive or a negative externality? What does this imply about the differences between the costs and benefits that accrue privately to students compared to social costs and benefits? What are some reasons for the differences?
3. Explain/define and thoroughly discuss what is a ‘public good’ and ‘private good’? How do they differ? What is a common resource and why is it overused? Give at least 3 examples of each.
4. What is an artificially scare good? Why is it under-consumed? Why do markets typically fail to supply these goods efficiently? How can a government intervention make society better off in the production and consumption of these types of goods?