University:
Bradley University
Course:
ECO 199 | Foundational Topics in Economics
Academic year:

2023
Views:

390

Pages:

2
Author:

rehinhea0c

Short Answer – Create a brief answer to the following questions. 1. Why do markets with negative externalities tend to overproduce goods or services? 2. How do subsidies help correct positive externalities? 3. Why can’t private markets effectively supply public goods? 4. How does the free-rider problem affect the funding and provision of public goods? 5. Why are aerial fireworks displays a public good? 6. How can risk aversion contribute to the overuse of common property resources? 7. Why is property rights enforcement important in preventing the tragedy of the commons? 8. How does the government determine whether to intervene in a market with an externality? 9. Why do common property resources lead to market failure even though they are rival (like private goods)? 10. How do social costs differ from private costs in markets with negative externalities? Answers: 1. Because external costs are not included in the market price, so the true societal cost is underestimated. 2. They increase consumption or production by lowering the cost to buyers or raising the returns for sellers. 3. Because public goods are non-excludable and non-rival, so firms cannot charge users and earn profit. 4. People can benefit without paying, reducing the incentive for anyone to fund the good. 5. Everyone can see them so you cannot charge a price to prevent their consumption (they are nonexcludable), and one person viewing the display does not hinder other people from also seeing it (they are non-rival). 6. People prefer a guaranteed outcome (keeping a resource) over uncertainty (leaving it for later use). 7. Clear ownership helps prevent overuse by giving individuals a reason to conserve resources. 8. By evaluating whether private outcomes deviate from socially optimal levels due to external effects. 9. Because they are non-excludable, so people overuse them without facing direct costs. 10. Social costs include all effects on society, while private costs only include effects on producers. Markets with negative externalities will have social costs that are greater than private costs.