QUESTIONS AND PROBLEMS

1. Make a list of the positive and negative externalities that you generate or that affect you. For each, discuss the advantages and disadvantages of each of the remedies discussed in the text.

2. An important class of externalities to which attention has recently been directed is called information externalities. The information produced by one individual or rm generates benets for others. The success of an oil well on one tract of land increases the likelihood of oil's being found on an adjacent tract, and hence increases the value of that tract. Can you think of other examples of information externalities? What are the likely consequences of information externalities for the efficiency of resource allocations? Discuss the possibilities of private market solutions to these problems.