Micro Chapters

Question 1

What characteristics make up public goods?

Answer 1

Non-rivalrous: The use of the good by one does not take it away from anyone else.
Non-excludable: No one can be excluded from using the benefit of the good.
Non-collectable: Difficult to design a payment system for the good.

Question 2

What is an externality?

Answer 2

An externality refers to the effects the good and service has on other than the production or use of it.

Question 3

What is negative externality and provide an example

Answer 3

A negative externality is the negative effects of the good or service being used on other than production or the use of the service.
Social cost is greater than private cost (Pollution)

Question 4

What is positive externality and provide an example

Answer 4

A positive externality is the positive effects of the good or service being used other than the production of it or the use of the service.
Social benefit it greater than private benefit (Good health care system means less absentees and therefore more people working)