1. Suppose Coca-Cola and Pepsi announced plans to merge into a single global soft-drink company. What would be the possible effects on softdrink

consumers? What kind of regulatory scrutiny should the government cast on the proposed merger?

2. In each of the following situations, explain whether an externality is present.

a. Mine safety has improved in recent years. Nonetheless, mining accidents result in 50 to 100 deaths per year and thousands of lost workdays due to injury.

b. Large brokerage and financial service companies conduct intensive introductory training programs for new hires, many of whom, once trained, leave the company within the first year to work for competitors.

c. The volume of e-mail spam has grown exponentially in the last 5 years.

d. A husband and wife who have put off buying a house suddenly find themselves priced out of the market by rocketing real-estate prices.

3. Explain whether you agree or disagree with each of the following statements. In each case, indicate whether your position is based (implicitly

or explicitly) on benefit-cost analysis or on some other criterion.

a. The Consumer Product Safety Commission should uphold strict safety standards for all children's toys.

b. DOLE should relax many of its workplace safety regulations, for instance, by relying on workers to take precautions rather than requiring expensive safety devices on machines and tools.

c. All public buildings owned by those receiving government funds must be modified where necessary to ensure access for disabled individuals.

d. The Department of Agriculture should curtail the use of pesticides by farmers.

e. Given its large projected deficit, the government should postpone capital spending to repair 80-year-old bridges.