Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 10, Problem 6QR
To determine
Application of coase theorem.
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Consider the example in the table below of three homeowners residing on the banks of a lake. Assume that the lake was cleaned up to the socially efficient level and that the total costs of the cleanup were shared equally among the homeowners (stick to integer values here):
Part I.
Will all three homeowners be better off? (you have to calculate on your own)
All are better off
A and B are better off, but C is not
B and C are better off but not A
Part II.
What problems does this bring up about sharing the costs of public goods?
Society can be made better off but only on the expense of certain groups
Society should not even invest in the cleaning of the lake on the first place
Society can never recover public good costs
Suppose that it costs $300 per day to search for chanterelle mushrooms at Pt. Reyes National Seashore. On an average day, the total weight of mushrooms M found at Pt Reyes is M=100x-x2 pounds where x is the number of people mushroom hunting on that day. Chanterelles can be sold for $80 per pound. How many more people will go mushroom hunting than is socially optimal?
Suppose that it costs 500 per day to search for chanterelle mushrooms at Pt.Reyes National Seashore.On an average day, the total weight of mushrooms M found at Pt.
Reyes is M = 100x - x2 pounds where x is the number of people mushroom hunting on that day. Chanterelles can be sold for $80 per pound. How many more people will go mushroom hunting than is socially optimal ?
Chapter 10 Solutions
Essentials of Economics (MindTap Course List)
Ch. 10.1 - Prob. 1QQCh. 10.2 - Prob. 2QQCh. 10.3 - Prob. 3QQCh. 10 - Prob. 1CQQCh. 10 - Prob. 2CQQCh. 10 - Prob. 3CQQCh. 10 - Prob. 4CQQCh. 10 - Prob. 5CQQCh. 10 - Prob. 6CQQCh. 10 - Prob. 1QR
Ch. 10 - Prob. 2QRCh. 10 - Prob. 3QRCh. 10 - Prob. 4QRCh. 10 - Prob. 5QRCh. 10 - Prob. 6QRCh. 10 - Prob. 1PACh. 10 - Prob. 2PACh. 10 - Greater consumption of alcohol leads to more motor...Ch. 10 - Prob. 4PACh. 10 - The many identical residents of Whoville love...Ch. 10 - Prob. 6PACh. 10 - Prob. 7PACh. 10 - Prob. 8PACh. 10 - Prob. 9PA
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- Suppose that the firm can build an air filter for 7$. The filter can only be used efficiently by the firm, not by the consumers. What is the new outcome if there is a right to fresh air? How does your answer change if the air filter is only usable by consumers, and is Coase theorem still applicable?arrow_forwardBecause public goods are jointly consumed, which of the following is obtained by summing the private marginal benefits across all individuals?arrow_forwardThe graph directly below depicts the production of oil from the Gulf of Mexico, with market demand, MEC, MSC, and MPC all drawn on the figure. The X axis defines barrels of oil pumped from the gulf. A. What area represents net benefits to society at the socially optimal outcome? A. A + B B. A + B + G C. A D. None of the above B. What area represents the loss in net benefits at the privately optimal outcome? A. H B. H + L+ K C. K D. None of the abovearrow_forward
- What is the principal question Coase posits when it comes to negative externalities? Who should be allowed to inflict harm on whom? Who is morally correct in any given argument about harm? How large is the harm caused?arrow_forwardBenny and Danny live next to each other in a student resident building on campus. Benny is a metal-head (likes loud heavy metal music) and Danny is a bookworm (likes a quiet environment to study). From rocking out to heavy metal, Benny gets a benefit of $100. When Benny’s music is playing Danny suffers a cost of $175. Suppose Benny is given the right to listen to his music. [9] According to the Coase Theorem, describe the transaction, if any, that will be made between Benny and Danny.arrow_forwardQ=100-P Costs $6 to purchase a pack of cigarettes each pack smoked does $6 worth of health damage and $5 worth of secondhand health damage All consumers are aware of these costs 1. Due to an introduction of a hyper-effective tobacco fertilizer, the cost of producing a pack of cigaretts decreases to $1. How does this affect the level of smoking and the level of social loss? 2. suppose the government decides to pursue a Pigovian solution to eliminte social loss. What sort of of tax or subsidy would they implement and what is the resulting quantity of cigarette packs purchased? 3. In the case of the Coase Theorem, it is said that the socially efficient level of smokeing will occur without government intervention. how are property rights established and why might the Coase Theorem not apply in this setting?arrow_forward
- Firms A and B each produce 80 units of pollution. The federal government wants to reduce pollution levels. The marginal costs associated with pollution reduction are MCA = 50 + 3QA for firm A and MCB = 20 + 6QB for firm B, where QA and QB are the quantities of pollution reduced by each firm. Society’s marginal benefit from pollution reduction is given by MB = 590 – 3Qtot, where Qtot is the total reduction in pollution. How much total pollution is there in the social optimum?arrow_forwardViral infections such as flu are highly contagious. The number of infections and thus the spread of the disease can be prevented by getting vaccinated. However, the decision to take vaccine is voluntary and some people choose not to go for it for various reasons.] [What type of externality occurs by getting vaccinated against contagious diseases? Explain your answer in 100 words or less. [In a diagram, show the market equilibrium quantity of the vaccine. Is the quantity also socially efficient? Explain in 100 words or less and demonstrate using the same diagram. [Suggest one method to achieve a socially efficient outcome. Explain your answer in 100 or less words.arrow_forwardThe Coase theorem states that if transactions costs are low, property rights are assigned, and parties understand how much they value something, private bargaining will result in an efficient solution to the problem of externalities. government intervention is always needed if externalities are present. a free market equilibrium is the best solution to address externalities. assigning property rights is the only thing the government should do in a market economy.arrow_forward
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