I. Contrast the private and social benefits of each of the following (2-3 sentences each). If you think the private and social benefits are approximately equal, explain why.
A. You go to a movie.
B. You mow your lawn (think aesthetics).
C. You take the Metro instead of driving during rush hour.
D. You learn how to program computers.
E. You invent a cure for AIDS.
II. Contrast the private and social costs of each of the following (2-3 sentences each). If you think the private and social costs are approximately equal, explain why.
A. You start smoking marijuana.
B. You mow your lawn (think noise).
C. You drive late at night instead of taking the Metro.
D. You put up a web page attacking organized religion.
E. You rob a bank.
III. Assume that national defense is a public good in the strong sense - an unsubsidized market produces NO defense even though the social benefits of it are high. Carefully graph this market, showing the market quantity Qm and the efficient quantity Qe. Shade the region of deadweight losses, and intuitively explain why these deadweight losses are so large. (1-2 sentences)
IV. "Immigrants impose externalities on American workers by reducing wages." Carefully explain why this claim mis-uses the notion of externalities. (3-4 sentences)
[Use your calculator for this one!] In 1950, suppose that
VI. Suppose there is a constant marginal cost of producing CDs of $2.