There is an excludeable public good. It will be provided by a club, which must fund the good through membership fees. Agents value the good differently, but the club manager knows the socially efficient level of the good. Consider the followng two properties. Which of these must be true for the manager to be able to set membership fees to fund the efficient level of the good? (i) The club manager knows each agents marginal valuation of the good at the efficient level. (ii) The club manager can charge different agents different membership fees. O a. Both (i) and (ii) must be true. O b. Only (ii) need be true. O c. Only (i) need be true. O d. Even if (i) and (ii) are true, this may not be possible.

There is an excludeable public good. It will be provided by a club, which must fund the good through membership fees. Agents value the good differently, but the club manager knows the socially efficient level of the good. Consider the followng two properties. Which of these must be true for the manager to be able to set membership fees to fund the efficient level of the good? (i) The club manager knows each agents marginal valuation of the good at the efficient level. (ii) The club manager can charge different agents different membership fees. O a. Both (i) and (ii) must be true. O b. Only (ii) need be true. O c. Only (i) need be true. O d. Even if (i) and (ii) are true, this may not be possible.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.7P

See similar textbooks

Similar questions

Suppose that we are considering the market for windmills. The private demand for electric cars is given buy: ?d = 160 − 2? And the private supply of electric cars is given by: ?s = ? − 20Suppose also that electrci cars produce a positive externality, with a Marginal Economic Benefit of $30 per unit. 5. What would be the private market equilibrium (p* & Q*)? 6. What is the socially optimal equilibrium (p* & Q*)? 7. What is Producer Surplus and Consumer Surplus in the private market equilibrium? 8. What is the increase in Total Surplus from moving from the private market equilibrium to the socially optimal equilibrium?
Q4. (a) If you are a firm owner who is operating in the perfect competitive market, you areproducing socially efficient outcome. Does it imply that your profits are zero? If you become amonopolist then why do you deviate from the socially efficient outcome? b) In Delhi, as the winter season is approaching, how will it affect the demand function and themarket equilibrium of sweater market? Now after that if the price of wool increases how will themarket equilibrium be affected?
uppose that we are considering the market for windmills. The private demand for electric cars is given buy: Qd = 160 − 2? And the private supply of electric cars is given by: Qs = p − 20Suppose also that electrci cars produce a positive externality, with a Marginal Economic Benefit of $30 per unit. 5. What would be the private market equilibrium (p* & Q*)? 6. What is the socially optimal equilibrium (p* & Q*)? 7. What is Producer Surplus and Consumer Surplus in the private market equilibrium? 8. What is the increase in Total Surplus from moving from the private market equilibrium to the socially optimal equilibrium?
1. An externality exists when agent A’s utility or production function depends on real variables chosen by another agent B, without an offer of compensation or other attention given to the effect of A’s well-being. True or False 2. The "invisible hand" of the market leads to the efficient allocation of goods and services, even in the presence of externalities. True or False 3. If there is a negative production externality, the market price of the good will be higher than the socially-optimal price. True or False
a) State the condition for the Pareto optimal provision of a public good. Interpret the condition. b) Consider agent A with (inverse) demand curve for the public good and agent B with inverse demand , where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p’s] c) Describe the Vickrey-Clarke-Groves (VCG) Mechanism, provide examples and discuss problems with the VCG mechanism.
2. Assume the market demand for cigarettes is as follows: Price per pack 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 Quanti ty (packs per day) 100 90 80 70 60 50 40 30 20 Suppose further that smoking creates external costs valued at 50 cents per pack. a. Draw the social and market demand curves b. At 3.50 per pack, what quantity is demanded in the market? 50 packs c. What is the socially optimal quantity at that price? ? d. How large would a tax need to be in order to bring about this socially optimal level? ?
8-) Bill’s demand for hamburgers (a private good) is Q=20–2P and Ted’s demand is Q=10–P.a. Write down an equation for the social marginal benefit of the consumption of hamburgers.b. Now suppose that hamburgers are a public good. Write down an equation for the social marginal benefit of hamburger consumption.
a. Suppose a market is introduced for the externality Eveline causes on Victor. Let us denote by px the price of this externality. Suppose "property rights" are assigned such that Victor has the right not to experience the smell of cooked cabbage. The competitive equilibrium price ratios pm and Px are equal to? b. Derive the market allocation corresponding to the new competitive equilibrium of the economy formed by Eveline and Victor (ce, me) and (cv,mv). c. Is the new competitive equilibrium Pareto efficient?
b) Consider agent A with (inverse) demand curve for the public good and agent B with inverse demand , where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p’s]
Consider the model of a rational consumer that cares about consumption of private goods and consumption of broadcast public television (a public good). Suppose that the total level of broadcast public television provided through voluntary contributions is 10 hours of programming. Then the government decides to raise money through a tax and provide 10 hours of programming to the public. What would we predict about crowd-out of voluntary contributions to broadcast public television when government does this? How would the answer change if consumers get warm glow utility from donating to broadcast public television in addition to utility from the public television itself? (Be specific.)
Consider agent A with (inverse) demand curve for the public good PA = 60 − 2QA and agent B with inverse demand PB = 90 − 5QB, where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p’s]
Why is it difficult for private markets to providethe optimal quantity of a public good? Why is itdifficult for government to provide the optimalquantity of a public good?