Costs and Public Goods
BUECO5903 BUSINESS ECONOMICS ASSIGNMENTS A Semester 1, 2013
Due dates for each section are provided in the Course Description.
Part A – Microeconomics – Worth 10% of total assessment:
Answer any five (5) of the following questions. Each question is worth 10 marks;
Question 1:
(a) Explain the impact of external costs and external benefits on resource allocation; (2.5 marks)
Ans : Resources are over - allocated when negative externalities exist because the equilibrium price is too low. Resources are under - allocated when positive externalities exist because the equilibrium price is too high
(b)Why are public goods not produced in sufficient quantities by private markets? (2.5 marks)
Ans :The main reason is that of free rider problem. Pure public goods have characteristics such as non excludability and non - rivalry. These characteristics gives rise to the free - rider problem.
(c)Which of the following are, or are not examples of public goods (or services)? Please explain your reason.
(1 mark each which includes ½ marks for each reason).
(i) The Judicial system Yes/No
Ans : Yes, it is a public service which is for public interest litigation
(ii) Pencils Yes/No
Ans: No, it not a public good but if it is distributed freely and especially if the government is handing them out it can argued that it is a public goods.
(iii) The quarantine service Yes/No
Ans: Yes, it is a public service because its for the the public and to check that there are no pests and disease come into the country.
(iv) The Great Wall of China Yes/No
Ans: Yes, it is a public goods because its free for everyone and everyone in china can go there and visit.
(v) Contact lenses Yes/No
Ans: No, it is not a public goods because public goods are goods which are free
Due dates for each section are provided in the Course Description.
Part A – Microeconomics – Worth 10% of total assessment:
Answer any five (5) of the following questions. Each question is worth 10 marks;
Question 1:
(a) Explain the impact of external costs and external benefits on resource allocation; (2.5 marks)
Ans : Resources are over - allocated when negative externalities exist because the equilibrium price is too low. Resources are under - allocated when positive externalities exist because the equilibrium price is too high
(b)Why are public goods not produced in sufficient quantities by private markets? (2.5 marks)
Ans :The main reason is that of free rider problem. Pure public goods have characteristics such as non excludability and non - rivalry. These characteristics gives rise to the free - rider problem.
(c)Which of the following are, or are not examples of public goods (or services)? Please explain your reason.
(1 mark each which includes ½ marks for each reason).
(i) The Judicial system Yes/No
Ans : Yes, it is a public service which is for public interest litigation
(ii) Pencils Yes/No
Ans: No, it not a public good but if it is distributed freely and especially if the government is handing them out it can argued that it is a public goods.
(iii) The quarantine service Yes/No
Ans: Yes, it is a public service because its for the the public and to check that there are no pests and disease come into the country.
(iv) The Great Wall of China Yes/No
Ans: Yes, it is a public goods because its free for everyone and everyone in china can go there and visit.
(v) Contact lenses Yes/No
Ans: No, it is not a public goods because public goods are goods which are free