1. What is the difference between private and social costs?2. How can the government intervene to force consumers to internalize external costs associated with: a. negative externalities? b. positive externalities?3. Differentiate between public good and common resources.4. What are the advantages of a flat tax system?

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(a) Shortly explain the relationship between elasticity of a good and the consumption tax rate it should be imposed upon it. (b) What do we man by rivalry of a good? Give examples of rival and non-rival goods. To what extent is rivalry a crucial aspect of a public good? (c) Give examples of positive and negative production and consumption externalities. (so you need to give 4 examples in total) (d) Explain whether the Coase theorem is useful in practice. (e) Define vertical and horizontal equity objectives of a tax system. Which one do you think is more important in establishing equity and/or fairness? (f) What are the political implications of the First and Second Welfare theorems? Shortly explain. 3

A. Economic profit is an indication that consumers are willing to pay more for a good or service being offered. True False B. An advantage of tradable permits over emission taxes is that   no knowledge of marginal abatement costs is needed to ensure that the tax rate is optimal. the regulator sets the price of permits. the regulator does not have to determine how much to reduce pollution levels. the regulator must set the optimal tax rate.

Determine whether the actions below correct positive, negative externalities or neither: A. Correct positive externalities B. Correct negative externalities C. Correct neither 1. government control of the prices in the market 2. Subsidize production in the market ? ✓ 3. Increase the cost of production in the market ? ?

QUESTION 4 Assume the following: • market quantity > socially desirable The inequality above describes which of the following? a. Negative Externality b. Positive Externality C. Budget Deficit d. Budget Surplus

Social Cost Supply Demand Q. QUANTITY Refer to Figure 10-2. If all external costs were internalized, then the market's output would be a. Q4. b. Q2. c. Q3. d. Q1- O O PRICE

What is a market-failure rationale for the government investing in transportation and infrastructure, for example roads, highways, bridges and tunnels? a. Government policy acts to correct for the under-provision of private goods by the private, unregulated market. b. Government policy acts to correct for the over-provision of private goods by the private, unregulated market. c. Government policy acts to correct for the over-provision of public goods by the private, unregulated market. d. Government policy acts to correct for the under-provision of public goods by the private, unregulated market.

a. Use the data below to derive the demand schedule for a public good. Instructions: Enter your answers as whole numbers. Demand Individual #1 Individual #2 Individual #3 Public Good Price Qd Price Qd Price Qd Price Qd $8 $8 1 $8 0 1 7 7 2 0 2 7 6 6 1 3 5 1 5 2 4 5 4 2 4 4 3 5 3 3 3 6 3 4 6 4 2 2 7 2 5 7 1 1 8 8 5 1 b. Using the following supply schedule, determine the optimal quantity of this public good. Quantity Supplied Price $19 10 16 8 13 6 4 10 7 2 4 1 co LC LC cC LO LC

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