1. Indicate whether each of the following is a private good, a common resourcet
ID: 1199322 • Letter: 1
Question
1. Indicate whether each of the following is a private good, a common resourcet a
natural monopoly, or a public good
A. A fireworks display
B. A movie viewed at a large theater
C. A video rental
2. The consumption of alcohol is often cited as an example of a negative externality'
Explain a situation in which alcohol would be considered a negative externality.
3. Describe why a consumer who chooses a consumption bundle in which the relative
price exceeds the marginal rate of substitution can't be at an optimum.
Explain a situation in which
is often cited as an example of a negative externality'
Explain a situation in which is often cited as an example of a negative externality' alcohol would be considered a negative externality'
Explanation / Answer
1..A Public good is a good that is both non-excludable and non-rivalrous in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others.
2.Negative externality is defined as
It occurs when a product or decision costs the society more than its private cost. It is generally viewed as a failure of the market because the level of consumption or production of the product is higher than what the society requires.
Market failure exists any time the free market results in an over or under-allocation of resources towards a particular good or service.
one in which it is the consumption of a good that creates negative costs for society. In such a market, private consumers of the good benefit more from its consumption than society as a whole. Consider the example of tourists in a beach town who consume too large amounts of alcohol while on their vacation. Such individuals are just enjoying themselves, and probably have a blast getting drunk, but in the process they create lots of trouble for the local community in the beach town. The external costs of their behavior may include:
§ vandalism of property
§ public displays of lewd behavior (vomitting, urinating, etc…)
§ physical harm to others, if they attempt to drive or walk home while inebriated
§ costs to local taxpayers, whose taxes support the police and emergency services that are often called upon to mitigate the behaviors of drunk tourists.
3. A budget constraint requires that the cost of a consumer’s consumption bundle be no more than the consumer’s total income. A consumer’s consumption possibilities is the set of all consumption bundles that can be consumed given the consumer’s income and prevailing prices. A consumer’s budget line shows the consumption bundles available to a consumer who spends all of his or her income
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