1. A hotel owner, having heard that new hotels plan to open in his area, says, "we have too many hotels in this town already. Statistics show that vacancy rates average 20 percent on any given night." Assuming this is correct, evaluate his negative assessment of the situation in terms of business-stealing and product-variety externalities.

2. Explain the theory that education acts as a signaling device' How does this contrast to the theory of education as an investment in human capital?

3. Explain the difference between inferior goods and normal goods' As a developing economy experiences increases in income (measured by GDP), what do you predict will happen to the demand for inferior goods?