Economics Homework Ten Answers - Student Ten

1\. In your own words, try to give a better definition of "externalities" than provided by this Lecture. The positive or negative effect of a transaction on persons other than the buyer and seller.

Superb.

2\. Explain why marginal revenue must be zero when total revenue is maximized. If the total revenue is maximized you can't make any more revenue.

Right, but relate this to marginal revenue. (Minus 1).

4\. Give an example of a positive externality, and an example of a negative externality. The example does not have to be limited to a business. An example of a transaction that can either positive or negative externalities is smoking. If a person buys cigarettes and smokes them in a public place a non-smoking person may experience a negative externality in having to breathe the polluted air. On the other hand if a poor person who can't afford cigarettes parks himself next to the smoker, he reaps the benefit of a free smoke.

Note that the poor person is hurting himself by doing that. But your answer is clever and receives full credit.

5\. Explain why private firms in the free market are unlikely to try to provide public goods. Because they are not getting any benefit, since it's a public good. A firm is not going to do something if it can't get any profit.

OK, could explain a bit more why.

6\. Review question: the cross-elasticity of A with respect to B is positive, and C with respect to D is negative. What is the relationship (complement or substitute?) of goods A and B with each other, and C and D with each other? Explain. A and B are complements because they are positive. C and D are substitutes because they are negative.

Nope. You have this backwards. (Minus 1).

7\. List the four factors of production and give a very brief explanation of each. Land, money, workers and entrepreneurship.

Good, but need to include "a very brief explanation of each" as requested. (Minus 1)

Good work. 57/60.--Andy Schlafly 23:07, 25 November 2009 (EST)