1. What would happen if we eliminated taxes and paid government programs with voluntary contributions instead?
2. Explain the difference between a private good and a public good. Why has there been an increase in the number of public goods "produced" by governments?
3. Explain why the free-rider problem occurs for public goods but not for private goods.
4. Why is the "optimal quantity of pollution" (the amount of pollution generated in any economic activity) never zero?
5. In the rest of the world, the tax on gasoline is considerably higher than in the United States, and gas consumption is considerably lower. Why doesn't the United States increase the gas tax?
6. How does a pollution tax cause consumers to help reduce pollution?
7. Do you believe the Government should set price controls over gasoline if its price rises toward five dollars per gallon in the future (as is likely, I fear)? What might be the impacts of such a policy?
8. Contributions to organizations like United Way and the American Cancer Society are tax-deductible: For each dollar contributed, a person's tax liability decreases by $0.15 to $0.31. Explain the rationale for this tax policy
9. Complete the statement with "low" or "high": Under a system of marketable pollution permits, a firm with ______ abatement costs will buy permits from a firm with _______ abatement costs.
10. When a neighborhood is cleaned up and kept neat, there are a number of positive spillovers: higher property values, less crime, happier residents. What types of government policies can encourage neighborhoods to clean up?
11. Classify the following pollution-control policies as command-and-control or market incentive based:
a. A state emissions tax on the quantity of carbon emitted by each firm.
b. The federal government requires domestic auto companies to improve car emissions by 2020.
c. The EPA sets national standards for water quality.
d. A city sells permits to firms that allow them to emit a specified quantity of pollution.
e. The federal government pays fishermen to preserve salmon.
12. Identify the following situations as an example of a negative or a positive externality:
a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds.
b. Your neighbor paints his house a hideous color.
c. Investments in private education raise your country's standard of living.
d. Trash dumped upstream flows downstream right past your home.
e. Your roommate is a smoker, but you are a nonsmoker.