Question

The heated debate between Republicans and Democrats is largely about whether we should have our government expand its role in our economy, or shrink it. Read the article “The Environment Is About Economics, Too” (Federal Reserve Bank of St Louis publication , Liber8, October 2010). Understand the rationale for government regulation in some areas, the tools of government regulation, and the cost-benefit analysis of government regulation.

1. Describe a negative externality related to cigarette consumption (or smoking).

2. Describe how the “free rider problem” might appear in the context of flu-vaccination.

3. What are some of the opportunity-cost elements of the CAFE regulations (or fuel economy standards) for cars and light trucks? And what are the expected benefits?

Answer 1

1. it causes external damage to society in terms of increased toxics from nicotene in the environment , it directly affects affects other agents of the economy who are not smoking as they share the common environment and earth.

2. Many people (free riders) who are not vaccinated or havenot paid for the services can cliam the vaccination ( also when they dont have flu) , leading to underprovision of flu vaccinations and leading to market failure.

3.oppurtunity cost is forgone cost of next best alternative , which can be torque , speed and car's mobility.

The expected benefits are increased efficiency and effectiveness.