problem set 2

959 Words Dec 1st, 2014 4 Pages
PROBLEM SET 2
Name: ___________________________________

Problem Set 2 is to be completed by 11:59 p.m. (ET) on Monday of Module/Week 4.

1. The following table presents data for wages in the market for internet security professionals.
(HINT: in the labor market the roles are reversed. Those who want to hire labor are the demanders. The workers enter the work force providing labor to the market place so they are the suppliers.)

Wage
Quantity Demanded
Quantity supplied
$50,000
20,000
14,000
$60,000
18,000
18,000
$70,000
16,000
22,000
$80,000
14,000
26,000
$90,000
12,000
30,000

What is the equilibrium wage? $60,000

Now, consider this scenario - Due to an increase in the internet security threats, the government wants to apply a
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This is shown in the following figure. Thus the socially optimum output is less than the actual output produced.

To internalize the externalities present and reach a socially desirable output, pigouvian taxes are imposed. Taxes increase the market price and thus demand changes. Therefore, levying a tax on each household to pay for the pickup to charging a fee for each bag or can picked up, will reduce the household demand for goods.

4. In the old days lighthouses were built along the coast to prevent ships from running aground on rocks in unfamiliar ports. By shining a beam of light over a port and guiding ships away from rocks, these vital buildings reduced the risk for ship captains and were generally considered to be extremely valuable resources. Curiously, lighthouses were almost always run and maintained by local governments. Explain in economic terms why private firms would not run a lighthouse.

Lighthouses are public goods. The two main characteristics which differentiate a public good from a private good are:
Non–excludability – No consumers can be excluded from the consumption of such good once provided.
Non–rivalry – Non rivalry in consumption implies that consumption of a particular good by an individual does not reduce the consumption of another individual.
Goods with these characteristics are known as public goods. Street light, national defense, etc. are examples of public goods. On the other hand, private goods are

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