7. What divergences arise between equilibrium and an efficient output when (a) negative externalities and (b) positive externalities are present? How might government correct these divergences? Cite an example (other than the text examples) of an external cost and an external benefit. Other examples of external costs might include secondhand smoke, noise from the stereo
down the hall, or road congestion. External benefits might be generated from outdoor Christmas lights, music from the stereo down the hall, or attractive landscaping in the neighborhood.
8. Explain why zoning laws, which allow certain land uses only in specific locations, might be justified in dealing with a problem of negative externalities. Explain why tax breaks to
businesses that set up in areas of high unemployment might be justified in view of positive
externalities. Explain why excise taxes on beer might be justified in dealing with a problem of
9. What are the two characteristics of public goods? Explain the significance of each for public provision as opposed to private provision. What is the free-rider problem as it relates to public goods? Is U.S. border patrol a public good or a private good? Why? How about satellite TV? Explain.
10. Draw a production possibilities curve with public goods on the vertical axis and private goods on the horizontal axis. Assuming the economy is initially operating on the curve, indicate how the production of public goods might be increased. How might the output of public goods be increased if the economy is initially operating at a point inside the curve?