Tara Gaither
ECON2308
Week 9 Homework
1. Please give an example of a positive externality.
A positive externality occurs when the consumption or production of a good causes a
benefit for a third party. An example is a person walking to work reduces congestion and
pollution which benefits people in a city.
2. In the lecture note, if John won’t change his loud morning departure, what can be a
method to internalize the cost?
One way to internalize the cost is for the neighbors to get up earlier and start their day
by eating breakfast.
3. Please give an example of free-rider problem, and suggest a method of fixing it.
An example of a free-rider problem is wifi. To fix the method best is to password protect
your wifi so people can’t use your wifi without it.
4. Are lighthouses public goods? Please explain. If they are public goods, are there free-
rider problems? What could be a method of solving the free-rider problem?
Yes, lighthouses are public goods that can’t be privately provided. They are a free-rider
problem since the lighthouse owners don’t charge boats for the lighting they provide.
One way to solve the free-rider problem could be to charge merchants in ports for the
lighting that brings the boats to port.