Economics Homework Ten Answers - Student Five

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Trisha M.

1. An externality is the side effect of certain transactions that affects other people than the buyer/seller. It can be either beneficial or detrimental and is not payed for by either the buyer or seller in the transaction.

Close, but the point is that the externality is not paid (note spelling: "paid", not "payed") by the third party who is affected. The buyer or seller may pay for it, but what matters is that the affected third party does not pay for it. (Minus 1). Also, as a matter of style, replace "that affects other people than" with "that affects people other than."

2. The marginal revenue must be zero when the total revenue is maximized because when the marginal revenue is negative or positive, either way, the total transaction is maximized. Since the total revenue is already maximized as much as possible, the marginal revenue cannot be positive or negative, thus, it is zero.

This explanation could be better. You say, "the total transaction is maximized" but I don't know what that means. (Minus 1). You'll be able to check the model answers later.

3. Pass!


4. An example of a positive externality is when someone who has younger siblings, buys a new shirt. Eventually, this person will grow out of the shirt, and one of the younger siblings will inherit the piece of clothing. This younger sibling was not involved in the transaction but still benefited from it later when he/she received the hand-me-down. Thus, the child experienced a positive externality. An example of a negative externality would be buying dish soap. At first, this does not seem like it could possibly cause any negative externality, but, nevertheless, it does! When selling dish soap the seller is not compensating for the noisy, disruptive, banging, clatter, or clanging of dishes being washed in a sink with the soap. Everyone else in the house, however, has to suffer through the negative externality although they were not at all involved in buying/selling the hated dish soap.

Superb examples. Could use as models!

5. Private firms are not likely to provide public goods because no one is willing to pay for them! Since no one can be excluded from the benefit of a public good, even if they don't pay for it, no one is going to want to pay for it if they don't have to.

Superb explanation, could also be a model!

6. A & B are substitutes because they are positive and C & D are complements because they are negative.


7. The four factors of production are: Land, which is what a firm will need to start a business, Money, which is needed to pay for the land, equipment, materials, etc.,Labor, which is needed to run the business, and Entrepreneurship, which is needed to keep the business running.

Some superb answers. 58/60. Congratulations, and a happy and blessed Thanksgiving to you!--Andy Schlafly 19:03, 25 November 2009 (EST)