Homework #5, Econ 306, Prof. Hanson.

1. The private demand for telescopes is P = 4 – Q, while the supply of telescopes is P = 1 + (Q/2). Every telescope bought and used benefits the rest of us by $3, since it might discover an asteroid heading toward Earth in time for us to prevent disaster. What would be the dead weight loss from not having a tax or subsidy on telescopes? What tax or subsidy would eliminate this loss?

2. Which of the following externalities are likely to lead to a market failure requiring the intervention of the federal government: fights between siblings, illegal immigrants take US jobs, local traffic congestion, CO2 emissions, employees sneezing on each other at work, hi-tech firms benefit by locating near a top university, a border state lax about letting terrorists come in from other nations?

3. Which of the following are public goods or bads: TV shows, medicine, education, parks, police, national defense, gasoline, rock music, or fishing?