Macroeconomic Short Answer Questions
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1.2 Suppose the consumption of a good entails rather sizable spillover benefits. How might the resulting misallocation of resources be corrected?
Spillover benefits refer to both costs and/or benefits that individuals or groups of people reap through the production or consumption of goods and serves, although they are these person(s) do not take part in decisions that aid the process of production or consumption. These costs and benefits result from both over or under-consumption of goods and services and over or underproduction of goods and services (Gupta, Mandal & Gupta, 2008). As a result, misallocation of resources occurs.
In order to correct the misallocation of resources, the source of the costs or the benefits need to be identified. That is, if it is taking place on the production side or the consumption side. Where there spillover benefits occur as a result of production, there is either overproduction or underproduction. In case of underproduction, there is need to boost production and this can be achieved through provision of subsidies in order to encourage firms to produce more. In case of overproduction, the firms’ potential is high and resources available for production meet an output that exceeds the actual demand. To correct this, the firms would have to be taxed more in order to make the production process expensive, bringing down the level of produced output in the firms. 1.3 Name a good, the consumption of which is accompanied by spillover benefits.
Public television
Access to public television is not prohibited to any individual. All those who consume the benefits that come with the good have not necessarily paid for it. On the same note, if there are costs needed for upgrading or improved the premises