Christian Kassab

1. The two types of market failures are demand side market failures which occur because it
is impossible to charge consumers what they are willing to pay for a product and supply
side market failures which occur because the firm does not have enough money to pay
the full cost of producing its output. Both can not occur at the same time because
producers are either over or under allocating their resources, not both.
2. Increase in supply will cause the consumer surplus to increase because price will go
down due to increase in supply and consumer surplus will go up.

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4. Public goods are nonexcludable and are not rivalrous. The free rider problem is when
people benefit from public goods without paying for them due to the non excludability of public
goods. US border patrol is a public good because they protect everyone in the US, regardless
of whether or not they paid to have them there and are non rivalrous because one person taking
advantage of them does not affect how another person benefits from them. Satellite TV is a
private good because you must have a dish, receiver, etc in order to receive it. This item is not
available to everyone free of cost.
8. Both spillovers are called external because they are separated apart from the actual
interaction between consumer and producer. Costs are negative because they reduce the utility
of third parties and benefits are positive because they increase the utility of third parties. A
subsidy to consumers will increase demand, while a subsidy toward producers will decrease
supply.
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12. Zoning could force businesses with negative externalities to relocate where they would not
disturb third parties. This results in a more efficient allocation of resources. Tax breaks for
companies installing fire prevention equipment encourages safe practice of business and has a
positive effect on all businesses nearby those installing the fire equipment. Taxes on beer would
discourage its consumption and would reduce the external costs of drunk driving, drug use and
domestic violence.