1.a)Describe three consumption activities that create external costs.
b) Describe three production activities that create external benefits.

2 The table below sets out the marginal benefits that Sam and Nick receive from. a town’s street lighting.
a) Is the town’s street lighting a private good, a public good, or a common resource?
b) What is the principle of diminishing marginal benefit? Does Sam’s, Nick’s or society’s marginal benefit diminish faster?

3 “In Modern Rarity, Workers Form Union at Small Chain – In New York’s low-income neighbourhoods, labour unions have virtually no presence. But after a year-long struggle, 95 workers at a chain of 10 sneaker stores have formed a union. After months of negotiations, the two sides signed a three-year contract that sets the wage rate at $7.52 an hour ” – The New York Times, February 5, 2006
1) Why are labour unions scarce in New York’s low-income neighbourhoods?
2) Who wins from this union contract? Who loses?
3) How can this union try to change demand for labour?

4. Incomes in China and India are a small fraction of incomes in Canada. But incomes in China and India are growing at more than twice the rate of those in Canada.
1) Explain how economic inequality in China and India is changing relative to that in Canada.
2) Explain how the world Lorenz curve and world Gini coefficient are changing.




Sample Solution