1. What is the externality associated with an individual driving on a congested highway? How do tolls help alleviate this externality? How should tools be set? (Hint: would you always want the toll to be the same all day?)

2. The steel industry pollutes the atmosphere as a consequence of its production process. Is it possible that it would be better for society that steel is produced by a monopolist instead of a set of perfectly competitive firms?

3. Farmers irrigate their crops by drilling wells into the aquifer. As farmers pump more and more water from the the aquifer, all must frill deeper to reach water: and the deeper the well, the more costly it is to pump the water

a) Identify the missing property rights in this instance

b) Is there an economic argument for limiting the amount of water farmers can pump from their wells?