3. What is a merit good?Why do we have merit goods?Would you consider the Sacramento Ballet a Merit Good?What about performances at the UC Davis Mondavi Center? What about this ECN 130 course?

If the owner of the Oakland Raiders football team threatens to pull his team out of Oakland unless the City of Oakland raises taxes to pay for a new stadium, are Oakland Raider games in Oakland now a public good.If you live in Oakland, pay taxes and hate football, how is your welfare affected? If you live in San Francisco and do not pay Oakland taxes, but go to Raider games, are you a free rider?Why or why not?

4. Your government decides to construct a huge $50 million sports/recreational facility in your city from a budget surplus.The capacity of the facility can handle all of the people in the city should they want to work out.Once built and equipped, admission will be free to all citizens.In terms of the formal definitions of a Public Good, is the new sports facility a public good (simply because it was provided by a

government)?Also, with no fees collected for its use, in what ways do you think the government hopes that it (or the community) will be compensated for this $50 million outlay?

5. The largest auto maker in your country has made some bad business decisions.Because of these decisions, it must declare bankruptcy, and is looking to lay off its 100,000 workers.Since these workers will affect the communities in which they live, should they lose their employment, the actual negative impact of the bankruptcy will be felt by 2,000,000 people.

The government decides that the economic cost of this bankruptcy is too great, so it raises taxes on the population and "bails out" the automaker.It gives enough money to the car manufacturer so that it can continue to produce cars for two more years while the carmaker restructures to become more competitive.

You live in the community where many auto workers live, but you do not have

anything to do with the automaker.However, you love to go to movies, and the local movie theater can only remain in business if the citizens of your town keep buying tickets.Many of the people are autoworkers and with the bailout in place they continue to go to the movies.You too, continue to go to movies.

Are you a free rider?If so, why would that be?

Can you say that the result of a healthy automobile sector in your economy is a public good?If so, why?

Let us say that your government raises SALES taxes to pay for the bailout (a tax on consumption).With a simple supply and demand diagram, show how this consumption tax would change the state of producer and consumer welfare in the market for movies in your town.

Look at the area of tax in your diagram.Is this a loss of welfare, and where is it going?Do you think that the automaker should be allowed to fail because its executives were too irresponsible to make sound business decisions?