EC 102: Principles of Microeconomics

Workshop # 4

1. Use a diagram to illustrate, and explain in the words, the nature of the market failures (is too much or too little output produced) created by the following:

a. Smoking b. Deodorant c. Police services d. Rocky Mountain National Park

e. A coal fired power plant f. Child immunization

2. For each of the above (except b.) suggest a government policy that might correct the market failure and explain how it would work.

3. Lawsuits are typically associated with which of the following? Why?

a. positive externalities b. negative externalities c. public goods

4. If the MSB > MSC of pollution control, then from society's perspective is there too much, too little, or just the right amount of pollution control being undertaken? Use a diagram to explain.

5. How is poverty measured in the U.S.? Does this measure tend to overestimate, underestimate, or neither, the true extent of poverty?