Question

Problem Set #2 is due at the start of the lecture on Tuesday, 1 May, 2018. No late submission will be accepted Problem 1 Greater consumption of alcohol leads to more motor vehicle accidents and, thus, imposes costs on people who do not drink and drive. Answer the following questions. (1) What type of externality is associated with the consumption of alcohol? (2) Illustrate the market for alcohol, labeling the demand curve, the supply curve, and the social-cost curve. your diagram. higher or lower than the efficient level of output? Give an intuitive explanation for (3) Illustrate the market equilibrium level of output and the efficient level of output in (4) Based on your analysis in part (2) and (3), is the market equilibrium level of output why these quantities differ Problem 2 Goods can be grouped into four categories (private goods, common resources, natural monopolies, public goods) according to two characteristics: (1) A good is excludable if people can be prevented from using it. (2) A good is rival in consumption if one person's use of the good diminishes other people's use of it. Explain which category each of the following goods falls into (1) national defense (2) cable TV (3) McDonald's hamburgers (4) the environment Problem 3 You have information shown in the accompanying table about a firm's costs Complete the missing data (Hint: Complete the second column (TC) first) TC FC VC ATC AVC MC 20 NA NA 20 10 16 20 24 4

Answer 1

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