a)Explain the linkage of public goods with market failure.

b)Explain how Coase's theorem can be used to "solve" for

externalities.

c)Consider the market for electricity where the demand isP = 100 2Q. The private marginal cost = 25+0.5Q. The pollution generated during the production process creates an external harm that is equal to MCe = Q. What is the level of output that a private competitive market would produce? What is the socially optimal level of output?

d)Suppose there are two types of used cars in a market- lemons (poor quality) and peaches (these are the good quality cars). A peach is worth 2400 to a buyer and 1900 to the seller. A lemon is worth 1000 to the buyer and 500 to the seller. The fraction of used cars that were peaches was and the remaining of the used cars were lemons. If the sellers know the type of the used car but the buyers did not know the same information; what would be the price that a buyer would be willing to pay? At this price, explain what will happen in this market.