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Economics 4220 Problem Set 1 Solution

  • Date Submitted: 06/09/2016 05:59 AM
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Economics 4220 Problem Set   1 Solution
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Instructions:   This problem set consists of two parts.   The first part is comprised of 10 multiple choice questions that will be worth 2 points each.   The second part is comprised of four short answer questions.   You are to answer all four of the questions.   Each question will be worth up to five points.

Part I: Multiple Choice – You are to answer all ten of the following multiple choice questions.   Each question is worth two points.

Question #1:   Flu vaccines provide both private benefits to individuals and positive external benefits to other members of society.   Without government intervention, we would expect:


Question #2:   Steve purchase pizza which costs $3 a slice and Diet Coke which costs $0.75 a can.   At his current consumption level, the marginal rate of substitution between pizza and Diet Coke is 6.   Given this information, we know that Steve is:


Question #3:   Many economists have documented a strong correlation between income and environmental quality across countries – as nations (individuals) become wealthier, they are willing to spend more to protect the environment.   Based on this information, environmental quality is a:

a) Normal good
b) Inferior good
c) A private good

Use the following figure to answer Questions #4 and #5

Figure: Marginal Private Benefits and Marginal Social Benefits

Question #4: Without government intervention, this market will produce __________ units at a price of _____________


Question #5:   If the government were to intervene in this market and encourage individuals to fully internalize the external benefits of consumption, what would be the resulting equilibrium quantity and price in this market?

Use the table below to answer questions #6 and #7

Dave and Art live in a new housing development and...


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