1. What is the relationship between Pigovian taxes and market failure? How do Pigovian taxes internalize externalities? Suppose that we are able to identify that the external cost of driving cars is $5,000. How can we use a Pigovian tax to internalize this external cost? Use a graph to illustrate.
2. Explain fully why the private sector of a free enterprise economy cannot produce public goods such as lighthouses.
3. The fishery is the most important common property resource in Canada. Why is it so difficult to prevent overfishing when the evidence is clear that overfishing will destroy the fishery? What kinds of policies have Canada used to protect the fishery?
4. The media often claims that high-income Canadians pay the same or lower taxes than low-income Canadians. Is this a valid claim? Why or why not? Compare a Canadian earning $40,000 per year with a Canadian earning$80,000 per year. Would the higher-income Canadian pay the same amount of tax? Twice as much tax? Or more than twice as much tax? Explain. Explain why marginal tax rates in Canada are higher than average tax rates.