Problem 2: Quota One method of dealing with a negative externality is to set quotas on the consumption of the good. Suppose that there are only two consumers of a good with a negative externality, Nicole and Andrew. Their willingness-to-pay schedules are given below. Nicole's willingness to Andrew's willingness to Quantity 1 рay 50 рay 25 2 40 20 30 15 4 20 10 10 [Note on interpreting the table - the willingness to pay that is listed is for that specific unit of the good. For example, Nicole is willing to pay $50 for her fırst unit, $40 for her 2nd, and so on.] Suppose the government wishes to limit consumption of this good to 6 units, and thus sets a consumption quota of 3 units on each consumer. If the price of the good is $15, each consumer will purchase the three units allowed. What will be the total consumer surplus in this market? $ Now imagine that the quota is instead allocated based on willingness to pay (with the price remaining $15). With this allocation, Nicole would be able to purchase 4 units, and Andrew would purchase 2. What would be the total consumer surplus in this case? $
Problem 2: Quota One method of dealing with a negative externality is to set quotas on the consumption of the good. Suppose that there are only two consumers of a good with a negative externality, Nicole and Andrew. Their willingness-to-pay schedules are given below. Nicole's willingness to Andrew's willingness to Quantity 1 рay 50 рay 25 2 40 20 30 15 4 20 10 10 [Note on interpreting the table - the willingness to pay that is listed is for that specific unit of the good. For example, Nicole is willing to pay $50 for her fırst unit, $40 for her 2nd, and so on.] Suppose the government wishes to limit consumption of this good to 6 units, and thus sets a consumption quota of 3 units on each consumer. If the price of the good is $15, each consumer will purchase the three units allowed. What will be the total consumer surplus in this market? $ Now imagine that the quota is instead allocated based on willingness to pay (with the price remaining $15). With this allocation, Nicole would be able to purchase 4 units, and Andrew would purchase 2. What would be the total consumer surplus in this case? $
Chapter8: Market Failure
Section: Chapter Questions
Problem 2P: Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and...
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Question
Answer question attached and parts below:
b) Based on your answers above, the initial allocation of 3 permits per person was (efficient, inefficient, or indeterminate)
c) Allocating quota units to those who place the highest value on the good
- will keep surplus the same
- will not increase surplus
- can increase surplus
![Problem 2: Quota
One method of dealing with a negative externality is to set quotas on the consumption of
the good. Suppose that there are only two consumers of a good with a negative externality,
Nicole and Andrew. Their willingness-to-pay schedules are given below.
Nicole's willingness to Andrew's willingness to
Quantity
1
рay
50
рay
25
2
40
20
3
30
15
4
20
10
10
[Note on interpreting the table - the willingness to pay that is listed is for that specific unit of the
good. For example, Nicole is willing to pay $50 for her first unit, $40 for her 2nd, and so on.]
Suppose the government wishes to limit consumption of this good to 6 units, and thus sets
a consumption quota of 3 units on each consumer. If the price of the good is $15, each
consumer will purchase the three units allowed.
What will be the total consumer surplus in this market?
2$
Now imagine that the quota is instead allocated based on willingness to pay (with the price
remaining $15). With this allocation, Nicole would be able to purchase 4 units, and Andrew
would purchase 2.
What would be the total consumer surplus in this case?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc777eb6c-5f00-442c-a5ae-30c50b2299ca%2F123bf527-8606-476b-8a80-c3ada7ad270e%2Fa38h5oj_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 2: Quota
One method of dealing with a negative externality is to set quotas on the consumption of
the good. Suppose that there are only two consumers of a good with a negative externality,
Nicole and Andrew. Their willingness-to-pay schedules are given below.
Nicole's willingness to Andrew's willingness to
Quantity
1
рay
50
рay
25
2
40
20
3
30
15
4
20
10
10
[Note on interpreting the table - the willingness to pay that is listed is for that specific unit of the
good. For example, Nicole is willing to pay $50 for her first unit, $40 for her 2nd, and so on.]
Suppose the government wishes to limit consumption of this good to 6 units, and thus sets
a consumption quota of 3 units on each consumer. If the price of the good is $15, each
consumer will purchase the three units allowed.
What will be the total consumer surplus in this market?
2$
Now imagine that the quota is instead allocated based on willingness to pay (with the price
remaining $15). With this allocation, Nicole would be able to purchase 4 units, and Andrew
would purchase 2.
What would be the total consumer surplus in this case?
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