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Externality, Market Failures and Economic Regulation

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Instructions for Homework #6: Externality, Market Failures and Economic Regulation

Please write a short essay on economic externalities, market failures and economic regulation. You should address at least the following issues in your essay: What are externalities? How do they cause market failures? What kind of regulations is necessary to correct for these kind market failure?

Please make your essay brief and clear to earn high marks. Please don't use the question-answer format, rather it should be an essay which coherently at least covers all the above mentioned required elements (Indeed, the three are internally related, i.e., one causes the other). It is strongly suggested that after some general discussion on the topics, you then use a specific example to illustrate your ideas. Use graphs to illustrate your points if necessary.

Please also note: copying the exact text from anywhere, including the textbook will be considered as an academic offense. Yes, please use your own words and analytical reasoning to show your understanding of the topics.

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Solution Summary

Externality, market failures and economic regulation are examined.

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Market externalities are activities that include any cost or benefit that are not included in the cost of the product. Externalities are of two types:

Positive Externalities - Positive externalities exist when the benefit of all the acitivities of the producer is not realizable in the revenue and the producer expects intervention from the government to help realize ...

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