1. Problem Set #6 Points Distribution
Unit 6: Market Failures
Problem Set #6 Points Distribution

2. 1. Public Goods a. Characteristics b. Public Sector
1 Point- Identifies non-excludability
1 Point- Defines non-excludability
1 Point- Identifies non-rivalry (shared consumption)
1 Point- Defines non-rivalry
1 Point- Clear example
b. Public Sector
2 Point- The government (Public sector) must provide the good to everyone
1 point- If left up to the free market not enough would be produced
2 Point- Explains that Free Riders make profit impossible

3. 2. Externalities SUVs and Negative externalities (10 Points)
i. 1 Point –first clear externalities explaining who pays spillover costs
1 Point- second clear externality explaining who pays costs
ii. 1 Point- Correct graph with two S curves labeled MSC and MPC
1 Point- Free market P and Q
1 Point- Socially optimal P and Q

4. iii. 1 Point- MSC>MSB 1 Point- Good is overproduced 1 Point- Free market fails to produce because it doesn’t include spillover cost iv. 1 Point- Tax 1 Point- Graph shows left shift in supply

5. 2b. Externalities
b. Parks and positive externalities (10 Points) i. 1 Point –first clear externalities explaining who pays spillover benefits 1 Point- second clear externality explaining who pays benefit ii. 1 Point- Correct graph with two D curves labeled MSB and MPB 1 Point- Free market P and Q 1 Point- Socially optimal P and Q

6. iii. 1 Point- MSC<MSB Point- Good is underproduced Point- Free market fails to produce because it doesn’t include spillover benefits iv. 1 Point- Subsidize (specify producer or consumer) Point- Graph shows right shift in supply (subsidy to producers) or right shift in demand (subsidy to consumers)

7. 3. Anti-Trust Laws a. Purpose
2 Points- To promote competition and prevent monopolies
1 Point- Monopolies charge too much and provide too little (higher price, lower quantity)
1 Point- Monopolies are not productively efficient
1 Point- Monopolies are not allocatively efficient
b. Tax or Subsidize
1 Point- They should subsidize
2 Point- Subsidizing lowers MC curve so firms make more
2 Point- Taxing increases MC so they make less

8. 3. Anti-Trust Laws c. Microsoft 2 Points- Quality Summary
2 Points – Identify what they did to limit competition
1 Point- The student obviously read and understood the section

9. 4a. Redistribution of Income
a. Distribution of Income: Types of Taxes 1 Point- Defines Progressive (as income goes up, percent paid goes up) 1 Point- Defines Regressive (as income goes up, percent paid goes down) 1 Point- Defines Proportional (equal percentage of total income) 2 Point- Quality Examples (income, sales tax, property tax)

10. 4. Redistribution of Income
b. Lorenz Curve
2 Point- The given average doesn’t show how money is distributed or reflect individual’s standard of living.
1 Point- The poor and extremely rich skew the data
2 Point- Government compares perfect equality to actual equality
2 Point- The further the Lorenz curve is from the line representing equal distribution, the further the society is from income equality
3 Point- Lorenz Curve clearly graphed

11. 6 Points
FRQ#1

20. 8 Points
FRQ#2