Define benefit and cost externalities. Explain why situations involving benefit externalities tend to result in an under allocation of society’s scarce resources, and why situations involving cost externalities tend to result in an overallocation of society’s scarce resources.

Week Four Homework Questions
Submit your answer for (a)-(c) in a Word document and (d) in Excel or Google Sheet (for the last question)
a) question number 2 from chapter 14: Define benefit and cost externalities. Explain why situations involving benefit externalities tend to result in an under allocation of society’s scarce resources, and why situations involving cost externalities tend to result in an overallocation of society’s scarce resources.
b) question number 3 from chapter 5: Briefly explain the meaning of R2. A time series analysis of demand tends to result in a higher R2 than one using cross-sectional data. Why do you think this is the case?
c) question number 6 from chapter 5: What is multicollinearity? How can researchers detect this problem? What is the impact of this problem on the regression estimates? What steps can be taken to deal with this problem?
d) question number 2 from chapter 5:
Submit your answer for (a)-(c) in a Word document and (d) in Excel or Google Sheet (for the last question)
The sales the Lonestar Sports Apparel Company for the last 12 years are as follows: data for
2001
400,000
2007
617,000
2002
440,000
2008
654,000
2003
480,000
2009
700,000
2004
518,000
2010
756,000
2005
554,000
2011
824,000
2006
587,000
2012
906,000
· What is the 2001–2012 compound growth rate?
· Using the result obtained in part a, what is your 2013 projection?
· If you were to make your own projection, what would you forecast?