Answer to Question 1
Student responses will vary. The example should discuss some individuals choosing to live in areas with high taxes and large amounts of public goods provided, while others choose to live in areas with low taxes and small amounts of public goods provided.
Answer to Question 2
The reason is that rapid technological process typically brings about continued falling marginal and average total cost. Since you never know where those costs are headed its difficult to determine if a firm or industry is operating efficiently when further cost reductions are right around the corner.
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