Bundle: Principles of Microeconomics, 7th + Aplia, 1 term Printed Access Card
7th Edition
ISBN: 9781305124332
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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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?
Mike, Rosie, and Shobber live in separate houses along a dark and windy road. The following represent their marginal benefits for street lights:
MBMike=200-2QM
MBRosie=100-QR
MBShobber=100-2QS
where QM represents the quantity of street lights consumed by Mike, QR is the quantity of street lights consumed by Rosie and QS is the quantity of street lights consumed by Shobber. The Mayor of their town considers street lights to be a public good and is charged with purchasing the optimal number of street lights from Boone’s Light Shop. Boone’s is willing to sell street lights for $150 per light.
b. What quantity of street lights should the Mayor purchase? Why? Suppose the Mayor is able to implement a pricing scheme to charge users for the illumination services.
c. How much should each individual be charged? Does the tax revenue cover the total cost of providing the optimal number of streetlights?
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.
Chapter 10 Solutions
Bundle: Principles of Microeconomics, 7th + Aplia, 1 term Printed Access Card
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 - Prob. 3PACh. 10 - Greater consumption of alcohol leads to more motor...Ch. 10 - Prob. 5PACh. 10 - The many identical residents of Whoville love...Ch. 10 - Prob. 7PACh. 10 - Prob. 8PACh. 10 - Prob. 9PACh. 10 - Prob. 10PA
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