1. A fire extinguisher is an example of a(n) _ good with a(n)_ benefit. 2. Education generates...

Question:

1. A fire extinguisher is an example of a(n) _______ good with a(n)_______ benefit.
2. Education generates three types of external benefits: _______, _______, and_______.
3. The external benefit of transforming a high-school dropout into a graduate is about $_______ per year.
4. A parent chooses the level of education at which the marginal _______ benefit equals marginal cost and chooses _______ (more/less) than the socially efficient level because the parent ignores the _______.
5. It is sensible for the government to subsidize worker training and education because some of the benefits from training go to _______.
6. The external benefit of a LoJack is about $ _______ per year, compared to an annual cost per LoJack of $.
7. The external benefit of a tree is measured by the change in _______, and is equal to about $ _______.
8. LoJack and Insurance Companies. Consider the application External Benefits from LoJack. Suppose all vehicles in a state carry theft insurance. The benefit from reduced vehicle theft goes to insurance companies because they replace fewer stolen vehicles. Insurance companies do not offer any discounts for customers who install LoJack. The cost of LoJack is $100 per vehicle per year. To simplify matters, assume that the private benefit of LoJack is zero, so the social benefit equals the external benefit.
a. Suppose a single insurance company provides automobile insurance to all vehicles in the state
Will the insurance company provide free LoJacks to at least some of its customers? Explain.
b. Suppose that there are 20 companies in the state, each with a market share of 5 percent. Will the insurance company provide free LoJacks?
c. What is the threshold number of insurance companies the number at which each insurance company will be indifferent about providing free LoJack systems?
9. External Benefits from Education and Deadweight Loss. Using Figure as a starting point, compute the deadweight loss associated with reaching the market equilibrium at point a rather than the socially efficient outcome at point b. Notice that the marginal external benefit is constant at $4 per book, so the gap between the marginal private benefit curve and the marginal social benefit curve is$4.