8) Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film: First film Second film Third film Fourth film Fifth film Jack $7 5 4 3 C. Kathy $5 4 3 2 1 John $3 2 1 0 0 Nancy $2 1 0 0 a. Within the dorm room, is the showing of a movie a public good? Why or why not? If it costs $8 to rent a movie, how many movies should the roommates rent to maximize total surplus? b. If they choose the optimal number from part (b) and then split the cost of renting the movies equally, how much surplus does each person obtain from watching the movies? Is there any way to split the cost to ensure that everyone benefits? What practical problems does this solution raise? d. Suppose they agree in advance to choose the efficient number and to split the cost of the movies equally. When Jack is asked his willingness to pay, will he have an incentive to tell the truth? If so, why? If not, what will he be tempted to say? e. What does this example teach you about the optimal provision of public goods?

8) Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film: First film Second film Third film Fourth film Fifth film Jack $7 5 4 3 C. Kathy $5 4 3 2 1 John $3 2 1 0 0 Nancy $2 1 0 0 a. Within the dorm room, is the showing of a movie a public good? Why or why not? If it costs $8 to rent a movie, how many movies should the roommates rent to maximize total surplus? b. If they choose the optimal number from part (b) and then split the cost of renting the movies equally, how much surplus does each person obtain from watching the movies? Is there any way to split the cost to ensure that everyone benefits? What practical problems does this solution raise? d. Suppose they agree in advance to choose the efficient number and to split the cost of the movies equally. When Jack is asked his willingness to pay, will he have an incentive to tell the truth? If so, why? If not, what will he be tempted to say? e. What does this example teach you about the optimal provision of public goods?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter13: Positive Externalities And Public Goods

Section: Chapter Questions

Problem 24P: Assume that the marginal private costs of a film producing fuel-efficient can; is greater than the...

See similar textbooks

Similar questions

Identify the following situations as an example of a negative or a positive externality: You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds. Your neighbor paints his house a hideous color. Investments in private education raise your countrys standard of living. Trash dumped upstream flows downstream right past your home. Your roommate is a smoker, but you are a nonsmoker.
Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Fe and Qe. On the graph, shade in the deadweight loss at the market output.
In a market without environmental regulations, will the supply curve for a film account for private costs, external costs, both, or neither? Explain.
Radio stations, tornado sirens, light houses, and street lights are all public goods in that all are nonrivalrous and nonexclusionary. Therefore why does the government provide tornado sirens, street lights and light houses but not radio stations (other than PBS stations)?
Table 12.12, shows the supply and demand conditions for a firm that will play trumpets on the streets when requested. QS1 is the quantity supplied without social costs. QS2 is the quantity supplied with social costs. What is the negative externality in this situation? Identify the equilibrium price and quantity when we account only for private costs, and then when we account for social costs. How does accounting for the externality affect the equilibrium price and quantity?
Refer to Table 12.2. The externality created by the refrigerator production was 100. However, once we accounted for both the private and additional external costs, the market price increased by only 50. If the external costs were 100 why did the price only increase by 50 when we accounted for all costs?
Education provides both private benefits to those who receive it and broader social benefits for the economy as a whole. Think about the types of policies a government can follow to address the issue of positive spillovers in technology and then suggest a parallel set of policies that governments could follow for addressing positive externalities in education.