Bundle: Principles of Microeconomics, 7th + LMS Integrated Aplia, 1 term Printed Access Card
7th Edition
ISBN: 9781305242463
Author: N. Gregory Mankiw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 6QR
To determine
Application of coase theorem.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
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?
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…
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 + LMS Integrated 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
Knowledge Booster
Similar questions
- 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 both consume good X, a private good, and the protection of the fort, P. One unit of good X costs 1 unit of currency, and one unit of P costs 2 units of currency. Both Jon and David have an income of 100 and a utility function of the form: U = log(Xi) + 2 × log(PJ + PD)The budget constraint for each is given by:Xi + 2 × Pi = 100 (a) Find the amount of protection Jon will provide as a function of how much David provides, and explain why the relationship is the way it is.arrow_forwardPlease see attachedarrow_forwardQuestion 7 You are a guitarist that plays for a heavy metal band. Once a week, the band meets at your house for practice. The enjoyment you get from the practice sessions are valued at $500. Your next-door neighbor is annoyed by all the noise caused by the band practice sessions. She enjoys her peace and quiet at a value of $350. If the neighbor has the right to a quiet neighborhood, which of the following is a possible outcome according to the Coase Theorem? Your neighbor pays you $500 to stop the practice sessions. You pay your neighbor $400 to stop complaining. You tell your neighbor that she is too quiet. Your neighbor continues to complain, and you continue playing.arrow_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_forwardScenario 4 Suppose there are two residents in a neighborhood, Tana and Jason. Tana's demand for clean streets is Q = 100 – 4P. Jason's demand for clean streets is Q = 80 – 2P. If your answer is not a whole number, please make sure to round to the nearest hundredth. Refer to Scenario 4. What is the socially optimal number of clean streets if the marginal cost of cleaning them is $35? and what is the socially optimal number of clean streets if the marginal cost of cleaning them is $5?arrow_forwardSylvester and Rachel live together on an island with two goods, food and shelter. Food is a private good and shelter is a public good. The utility function of Sylvester is U= Fs + 2(Zs + Zr) where Fs is the amount of food he buys, Zs is the amount of shelter he buys and Zr is the amount of shelter Rachel buys. Similarly, the utility function of Rachel is U= Fr + Zs + Zr where Fris the amount of food she buys. Suppose the price of food is 10 and both Sylvester and Rachel have 100 to spend. Suppose also that it is not possible for Sylvester and Rachel to reach any kind of agreement. a. Determine the quantity of shelter they will buy and the efficient quantity of shelter if the price of shelter is 5? (Enter your answer in whole number.) Quantity of Shelter: 120 units Efficient b. What is the quantity of shelter they will buy if the price of the shelter is 15? (Round your answer to 2 decimal places (e.g., 32.16).) Quantity of Shelter: 30 units Not Efficient c. What is the quantity of…arrow_forward
- Q.3. Externalities I Perhaps ironically, air conditioners produce heat as a waste product (to say nothing of any externalities from energy consumption). Air conditioner’s waste warm up nearby outdoor areas. This effect can be substantial in dense cities. Suppose that the following are the benefits/ costs from running an air conditioner on a 90 degree day (Q is the temperature reduction enjoyed by the consumer of the air conditioning): MPB=MSB=30-Q MPC=10 External Cost=5 a) Graph the private/social marginal benefit/cost curves described above. b) Determine the market equilibrium consumption of Q. c) Determine the socially optimal consumption level of Q. d) Calculate the consumer/producer surplus in b) and c). Calculate the deadweight loss in each, if applicable. e) What is the deal with producer surplus? f) Determine the tax that will yield the socially optimal consumption level. What is the revenue generated by the tax?arrow_forwardHarold smokes cigarettes but his office mate Kumar hates smoking. Harold and Kumar havethe following utility functions:UH = 100 + 10z – 0.1z2UK = 100 – 10z,where z is the number of cigarettes smoked by Harold (and UH includes the cost of cigarettes).Determine:a. The number of cigarettes smoked by Harold when the external effect on Kumar is ignored;b. The socially optimal number of cigarettes smoked. To find the socially optimal numberof cigarettes smoked, we create a social welfare function (SWF). The SWF is definedas the sum of Harold’s utility and Kumar’s utility. Using this approach, find the sociallyoptimal level of cigarettes that should be smoked by Harold;c. The Pigouvian tax needed to reach this social optimum;d. The outcome with Coasian bargaining when the property right is assigned Harold;e. The outcome with Coasian bargaining when the property right is assigned to Kumar.arrow_forwardIn a market with 2 firms, the government has decided that 12 units of pollution must be abated and allocates each firm 6 units of pollution to abate. The total cost of pollution abatement for firm A is TCĄ = 9% and the total cost of pollution abatement for firm B is TCB B. If a market for pollution abatement was created, how much pollution would each firm abate in equilibrium? Firm A: 11 units; Firm B: 1 units O Firm A: 6 units; Firm B: 6 units Firm A: 4 units; Firm B: 8 units O Firm A: 1 units; Firm B: 11 units Firm A: 8 units; Firm B: 4 unitsarrow_forward
- Two firms are ordered by the Government to reduce their pollution levels. Firm A’s marginal costs associated with pollution reduction are MC = 20 + 4Q. Firm B’s marginal costs associated with pollution reduction are MC = 10 + 8Q. The marginal benefit of pollution reduction is MB = 400 – 4Q. Compare the social efficiency of the three possible outcomes: (1) require both firms to reduce pollution by the same amount;(2) charge a common tax per unit of pollution;(3) require both firms to reduce pollution by the same amount but allow pollution permits to be bought and sold.arrow_forwardSuppose that you put an invisible tracking device on your computer that will instantly lead police to it if your computer is ever stolen. Does your purchase of the tracking device provide a positive or negative externality? What kind of externality do you provide when you purchase a visible computer lock in order to prevent theft?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_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning