(a) Explain the following practice/policy in terms of externalities.
(i) Charitable donation over HK$100 is tax deductible in Hong Kong.
(ii) Government increases the penalty for the drivers who run the “red light”.
(b) Why are some of the products, such as gasoline, taxed more heavily than other goods such as food? Explain your answer in terms of externalities.
(c) How can patent encourage invention?