Question 1
If the production of a good generates external benefits, the government could increase efficiency by
◦ taxing the production of the good to reduce the amount produced.
◦ subsidizing production of the good to increase the amount produced.
◦ regulating production of the good to reduce the amount produced.
◦ requiring all producers of the product to be licensed to produce the product.
Question 2
You spend $300 every month to keep your lawn and garden maintained. Your neighbor has told you that she derives $50 a month in enjoyment from being able to look at your beautiful yard. Which of the following is
true?
◦ You are spending too much on your yard, because your neighbor derives only $50 worth of benefits.
◦ You should refuse to spend anything on your yard unless your neighbor pays you $50 a month.
◦ If you took into consideration the benefits your neighbor derived, the efficient level of lawn maintenance would be greater than $300 a month.
◦ If you took into consideration the benefits your neighbor derived, the efficient level of lawn maintenance would be less than $300 a month.
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