Homework 3

BECO 3310 | Part 3: Market Structures & Failures

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Material/Lectures Covered: Monopoly I & II, Externalities & Transaction Costs, Public Goods, Asymmetric Information, Public Choice

1. For each of the following examples, determine whether there is an external cost or benefit associated with use of the good and explain why.

  1. Flu Vaccines
  2. Cigarettes
  3. Loud Music

2. The graph below shows a market in which there is a positive externality. Label the area(s) for deadweight loss.

Positive externality graph

3. The graph below shows a market in which there is a negative externality. Label the area(s) for deadweight loss.

Negative externality graph

4. Place private goods, public goods, club goods, and common pool resources in their respective spot in the goods matrix below.

Goods matrix

5. Going back to our example from class about used cars, are people right to be skeptical about used car markets? Intuitively explain why or why not.

6. About private goods, public goods, club goods, and common pool resources. Give one example of each and briefly explain why they are that type.

7. When one says that public choice is "politics without romance," what does that mean? Intuitively explain using the language and tools of economics from class.

8. Draw a graph of a monopoly (seen several times in class) and explain where on the graph the monopoly will produce (quantity) and what price it will charge.