EBK ESSENTIALS OF ECONOMICS
8th Edition
ISBN: 8220103599832
Author: Mankiw
Publisher: Cengage Learning US
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Chapter 10, Problem 6QR
To determine
Application of coase theorem.
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Anne has just purchased a new house in a lovely neighborhood. Her neighbors are friendly and even brought her house-warming gifts. Anne, however, has a problem. Her neighbors have cats, and Anne hates cats. Even though the city has a law requiring all outdoor pets to be on a leash, her neighbors ignore it, and the cats roam all over Anne's property.
How would an economist describe this situation? Is there anything Anne can do? Can you think of a Coase- like private solution?
Suppose that two individuals, Jon and David, form a community and would like to construct a communal fort that would protect them from attacks. They consume both good X, a private good, and the protection from the fort, P. One unit of good X costs 1 unit while one unit of P costs 2 units, so the budget constraint for each is given by: Xi + 2Pi = 100. Both Jon and David have an income of 100 and a utility function of the form:
U = log(Xi) + 2log(Pj + Pd)
(a) How much protection, P, will be privately provided? What is optimal consumption of X, the private good?
(b) What are the socially optimal amounts of protection, P, and consumption, X, of the private good? How do the socially optimal amounts compare to that privately provided? Explain why.
15. Suppose a gated housing community includes 150 identical households. It is costly
to maintain the roads in the gated community. Suppose each household has a
marginal benefit MB = 200 – 25M for each mile of road maintained. The total
cost of maintaining roads is given by C = 20000M (MC=20000).
i. If the residents have to pay individually to maintain the roads in the vicinity
of their property, how many miles of roads will each household choose to
maintain on their own?
j. How many miles of roads should be maintained for the community
considering the public good nature of roads?
k. Suppose the community association could charge a flat fee to the
households to fund the maintenance of the roads. How much should this fee
be per household and what is the total cost of maintaining the socially
efficient level of this public good?
1. Draw the individual marginal benefit curves, overall marginal benefit and
the marginal cost curve. Identify and calculate the net social benefit of the
public…
Chapter 10 Solutions
EBK ESSENTIALS OF ECONOMICS
Ch. 10.1 - Prob. 1QQCh. 10.2 - Prob. 2QQCh. 10.3 - Prob. 3QQCh. 10 - Prob. 1CQQCh. 10 - Prob. 2CQQCh. 10 - Prob. 3CQQCh. 10 - Prob. 4CQQCh. 10 - Prob. 5CQQCh. 10 - Prob. 6CQQCh. 10 - Prob. 1QR
Ch. 10 - Prob. 2QRCh. 10 - Prob. 3QRCh. 10 - Prob. 4QRCh. 10 - Prob. 5QRCh. 10 - Prob. 6QRCh. 10 - Prob. 1PACh. 10 - Prob. 2PACh. 10 - Greater consumption of alcohol leads to more motor...Ch. 10 - Prob. 4PACh. 10 - The many identical residents of Whoville love...Ch. 10 - Prob. 6PACh. 10 - Prob. 7PACh. 10 - Prob. 8PACh. 10 - Prob. 9PA
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