1)

a) Review the definitions of externalities (external costs and benefits), private costs, and social costs. In your own life, what is a positive and a negative externality that you have to deal with? What is the source of those externalities?

b) How could the social optimum in both situations be reached? (Keep in mind that efforts to mitigate a negative externality or extend a positive externality should stop when marginal cost equals marginal benefit). (2 points)

c) Public goods are both nonrival and nonexcludable. What is an example of a public good that you use on a regular basis? What is an example of a private good, club good, or common resource that is often mistaken as a public good (or vice versa)? (1 point)

d) What is a situation in which you witnessed a free rider or acted as a free rider? (1 point)

Rival Nonrival Private goods Club goods Cable television, stadium tickets, theater tickets, etc. Excludable Common resources Public goods Small parks, public bathrooms, etc. Nonexcludable