Assignment:
Part 1
1. What incentive problem explains why the freeways I cities like Los Angeles suffer from excessive congestion?
2. How would you explain to a friend why the optimal amount of freeway congestion is not zero?
3. If Congress could declare any activity that imposes external costs on others illegal, would such legislation be advisable?
4. Explain why the wearing of high-heeled shoes might be viewed as the result of a positional externality.
Part 2
1. Can it be rational for a consumer to buy a Chevrolet without having first taken test drives in competing models built by Ford, Chrysler, Honda, Toyota, and others?
2. Explain why a gallery owner who sells a painting might actually create more economic surplus than the artist who painted it.
3. Explain why used cars offered for sale are different, on average, from used cars not offered for sale.
4. Explain why the used-car market would be likely to function more efficiently in a community in which moral norms of honesty are strong than in a community in which such norms are weak.
5. Why might leasing a new Porsche be good investment for an aspiring Hollywood film producer, even though, he can't easily afford the monthly payments?