Unit 6: Market Failures Problem Set #6 Points Distribution

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<ul><li>Slide 1</li></ul> <p>Unit 6: Market Failures Problem Set #6 Points Distribution Slide 2 1. Public Goods a. Characteristics 1 Point- Identifies non-excludability 1 Point- Defines non-excludability 1 Point- Identifies non-rivalry (shared consumption) 1 Point- Defines non-rivalry 1 Point- Clear example b. Public Sector 2 Point- The government (Public sector) must provide the good to everyone 1 point- If left up to the free market not enough would be produced 2 Point- Explains that Free Riders make profit impossible Slide 3 2. Externalities a.SUVs and Negative externalities (10 Points) i. 1 Point first clear externalities explaining who pays spillover costs 1 Point- second clear externality explaining who pays costs ii. 1 Point- Correct graph with two S curves labeled MSC and MPC 1 Point- Free market P and Q 1 Point- Socially optimal P and Q Slide 4 iii. 1 Point- MSC&gt;MSB 1 Point- Good is overproduced 1 Point- Free market fails to produce because it doesnt include spillover cost iv. 1 Point- Tax 1 Point- Graph shows left shift in supply Slide 5 2b. Externalities b. Parks and positive externalities (10 Points) i. 1 Point first clear externalities explaining who pays spillover benefits 1 Point- second clear externality explaining who pays benefit ii. 1 Point- Correct graph with two D curves labeled MSB and MPB 1 Point- Free market P and Q 1 Point- Socially optimal P and Q Slide 6 iii. 1 Point- MSC</p>