1. How does the efficiency wage hypothesis try to explain the relationship between productivity and wage rate? II. Explain the concept of externalities? How do externalities lead to welfare loss of markets? III. Start with differentiating between public goods and merit goods. Then answer the following questions: a. Why are public goods provided by the government? b. Why are health and education not pure public goods? IV. Explain the concept of market failures and how that concept relates to efficiency. Then answer the following questions: a. Why is environmental pollution regarded as a source of market failure? b. Propose two different policies which a government might implement to reduce pollution and explain how they would be designed to correct market failures and achieve efficiency and/or equity