Department of Economics
PEPF 401: SS2019
Tutorial 5
Dr. Hebatallah Ghoneim
Sheet 5: Externalities, Public Goods and Merit Goods
Question One:
1- Based on the above graph, what is the Social cost curve? What is the economy
experiencing? What is the equilibrium quantity and price? Why this amount is not
efficient?
2- Complete the below table:
Welfare Analysis
Without considering
externality
Consumer Surplus
Produce Surplus
With considering
externality
3- Show the deadweight loss of this market at equilibrium.
4- How can the government correct market failure?
Total Surplus
Question Two:
1- According to the graph shown, which price and quantity combination represents the social optimum for
this market?
2- What can the government do to internalize the externality?
Question Three:
State what is the type of the below goods and Why?
1.
2.
3.
4.
5.
Knowledge
Fish in the ocean
National defense
Fire protection
Ice-cream cones
Question Four:
The creation of knowledge is a public good. Because knowledge is a public good, profit-seeking firms tend
to free-ride on the knowledge created by others and, as a result, devote too few resources to the creation of
knowledge. How does the government correct for this apparent market failure?
Question Five:
Some advocates of antipoverty programs claim that fighting poverty is a public good. Explain what these
advocates mean by classifying charity as a public good. What does this have to do with the need for
government intervention?