1.You work in an office with 100 other people.Each September there is a charitable collection from the employees for money to help take the homeless off the streets.The contributions are voluntary.Some people give as much as $100, while others give $0.You are one of the people who give $0.With respect to what this charity is buying, are you a free rider?If so, why?If you are not a free rider, then why not?Why do you think that in almost every (real world) case such as this, there will be free riders?Are the results of homeless care a Public Good?Why do you think that a government might raise taxes in order to give general help and shelter to all of the homeless in your community?

2. Your government has decided to limit the production of large automobile gas guzzlers.The government Health Department has determined that the public is better served by the cleaner air that less gas guzzlers will provide. So the government decides to levy a $100,000 tax on producers of gas guzzlers.(Hint: this is an increase in the MC curve of the producers of $100,000 at all levels of production).

a.Show with a simple supply and demand diagram the free-exchange market for Gas Guzzlers before the imposition of the tax.Label the total area of welfare to the community from this market, and label the welfare that goes to the producer and to the consumer.

b.Show what happens to the diagram with the imposition of the tax.Label the new price and quantity impact, and show how TOTAL welfare changes if at all after the imposition of the tax.

c.Label and describe what happens after the imposition on producers of the tax, if anything, to the size of the CONSUMER AND PRODUCER WELFARE in this market UNDER EACH OF THE TWO following assumptions.The government

gives the total tax back to the people in the form of a cash payment;The government takes the money and sends it to a friendly foreign country so that the ruler can build a summer palace.

d. Do you think that the government has the right to intervene with the market in this way.If so, why?