LSC MICROECONOMICS
21st Edition
ISBN: 9781260186697
Author: McConnell
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 4, Problem 6P
To determine
The optimal quantity of public good.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
2. In this problem, you will compare the level of a public good chosen under majority voting to the socially-optimal level under three different sets of circumstances. Suppose first that individual i's demand curve for z is given by αi/z, where αi is a positive parameter. Instead of being linear, this demand curve is a hyperbola. Suppose further that z costs $1 per unit to produce (c = 1) and that this cost is shared equally among consumers. Therefore, cost per person is 1/n per unit of z. Then consider the three sets of circumstances listed below. Each situation has a different number of consumers in the economy and different collections of α values for the consumers. The number of consumers is denoted n and the vector of α values is denoted A = (α1,α2,...,αn-1,αn). Case 1: n = 7, A = (4, 2, 12, 4, 5, 13, 8). Case 2: n = 5, A = (10, 6, 11, 14, 8). Case 3: n = 9, A = (6, 9, 10, 4.5, 12, 7, 13.5, 8, 11). Using this information, do the following:
a)For each case, compute the preferred z…
1. Suppose there is a society with two people who have the following valuations of level y of a public good: v1(y) = 1210√y and v2(y) = 410√y so their marginal benefits are given by 605/√y and 205/√y, respectively. The cost of providing the public good is given by c(y) = 10y. So we have MC(y) = 10.
Suppose that their utility is given by u1 = x1 + v1(y) and u2 = x2 + v2(y) , where xi denotes person i’s money (that is not spent on the public good). Further, suppose their wealth/income levels are given by w1 = 500 and w2 = 800.
(a) What is the socially optimal level of the public good?
6. Consider the allocation of surface water between two types of users. The marginal net benefits are MNB, (q) =12-q, for one type and MNB, (q₂)=6-q, for the other type, where g, and q denote the quantity of water used by each type in suitable units and MNB denotes marginal net benefits in dollars per unit.
a. Determine the aggregate marginal net benefit. b. Suppose there are q, 8 units of water available in a given year. Determine the efficient
allocation of water to the two types. c. Suppose there are q, 4 units of water available in a given year. Determine the efficient
allocation of water to the two types. d. Draw a clearly labeled graph illustrating the efficient allocation of water in parts b and c.
Chapter 4 Solutions
LSC MICROECONOMICS
Ch. 4.A - Prob. 1ADQCh. 4.A - Prob. 2ADQCh. 4.A - Prob. 3ADQCh. 4.A - Prob. 1ARQCh. 4.A - Prob. 2ARQCh. 4.A - Prob. 3ARQCh. 4.A - Prob. 1APCh. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - Prob. 3DQ
Ch. 4 - Prob. 4DQCh. 4 - Prob. 5DQCh. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7P
Knowledge Booster
Similar questions
- Question 2 Suppose that three individuals each benefit from a public good. The marginal cost of the public good provision is fixed at $15 per unit: MC = $15 Whereas each of the three individuals (Person 1, Person 2, and Person 3) each receive a marginal benefit for each unit of the public good defined by: Person 1: MB!= 30 − 2Q Person 2: MB"= 20 − 2Q Person 3: MB#= 21 − Q As is the case with public goods, they are non-rival. Therefore, note that each person gains benefit from the total amount of Q purchased by everybody, not just the individual value that they purchase themselves (e.g. Q1, Q2, or Q3). 1. Draw a figure with all three MB curves, the MC curve, and the Social Marginal Benefit (SMB) Curve. Label all x-intercepts, y-intercepts, and kinks in the SMB curve Full explain this question and text typing work onlyarrow_forward2.- Assume that consumers are uniformly distributed along a one-mile stretch of a beach. N ice cream vendors are pondering where to position their carts. The price that they are allowed to charge is fixed by the EACAC (Equal Access to Coolness for All Coalition). (Also, each consumer will buy exactly one ice cream.) (a) Show that there is no equilibrium (in locations) if N=3. (b) Suppose N=5 and vendors position their cart each at one of the (mile) points ( 1/6, 2/6, 3/6, 4/6, 5/6 ) is that an equilibrium?arrow_forward7 . Suppose that maintaining the hiking areas costs $1.5 million annually, but financed instead by a tax of $4.41 per unit of pulp and paper production. If inverse demand for pulp and paper is given by P=15.88-(1.47/1,000,000)Q and marginal private cost is given by MPC=10, and if production of pulp and paper generates a negative externality given by MEC=4.41, then net benefits to society of preserving the hiking area will be __________________ million annually. (process of solving)arrow_forward
- 7-) We add the demands of private goods horizontally but add the demands of public goods vertically when determining the associated marginal benefit to society. Why do we do this and why are the procedures different for public and private goods?arrow_forwardEXPLAIN THOROUGHLY 1) What are some of the problems that result when a government prints money rather than raises taxes to pay its expenses? 2) How should user charges for government-provided goods and services be set to achieve efficientoutputs and usage rates of such products? 3) Indicate whether you agree with the following statement, and give your reasons for doing so: “Ifthe highways crossing the City of Koronadal were a pure public good, efficiency would require that the price to use the road be zero. However, during rush hour congestion, the road cannot be regarded as a pure public good and a toll should be charged for its use.” If an automated vehicle identification system were established for residents of the City of Koronadal who use the highways, how would you set tolls to achieve efficient use of the road? The AVI system would allow you to send a bill to each user of the road each month based on miles traveled on the road and the price you charge which could vary by time of…arrow_forwardConsider the town of Anywhere with only three residents, Mary, Bill, and Tricia. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each residents willingness to pay for each acre of the park. Acres Mary Bill Tricia1 $14 $18 $302 10 14 263 6 10 224 4 6 185 2 3 146 0 1 107 0 0 6 a)Suppose the cost to build the park is $33 per acre. How many acres should the park be to maximize total surplus from the park in Anywhere?A. 2 acresB. 3 acresC. 4 acresD. 5 acres b)Suppose the cost to build the park is $16 per acre. How many acres should the park be to maximize total surplus from the park in Anywhere?A. 2 acresB. 3 acresC. 4 acresD. 5 acresarrow_forward
- Competitive Markets and Externalities 1.What impact do policy interventions have on the supply and demand equilibrium for a product? Provide specific examples 2.What are the determinants of price elasticity of demand? Identify at least three examples? 3.Explain how price elasticity can impact pricing decisions and total revenue of the firm? 4.can policy market interventions cause consumer or producer surplus? Explain why using specific reasoning.arrow_forwardSuppose that there are three beachfront parcels of land available for sale in Asilomar and six people who would each like to purchase one parcel. Assume that the parcels are essentially identical and that the minimum selling price of each is $445,000. The following table states each person's willingness and ability to purchase a parcel. Person Willingness and Ability to Purchase (Dollars) Ana 510,000 Charles 470,000 Dina 420,000 Gilberto 390,000 Juanita 380,000 Yakov 600,000 Which of these people will buy one of the three beachfront parcels? Check all that apply. A. Ana B. Charles C. Dina D. Gilberto E. Juanita F. Yakov Assume that the three beachfront parcels are sold to the people that you indicated in the previous section. Suppose that a few days after the last of those beachfront parcels is sold, another essentially identical beachfront parcel becomes available for sale at a minimum price of $432,500. This fourth…arrow_forward4. Assume that we have the following information about a firm that conducts scientific research: The total cost of producing q units of research is 1.5q^2. The firm believes that when it produces q units of research, it receives a benefit of 120q-q^2. The total external benefit to society of each unit of the firm's research is valued at q^2 (not including the benefit the firm receives). (a) Draw a graph that shows the marginal private cost, marginal private benefit, marginal social cost and marginal social benefit generated by this firm. How many units of research will the firm produce if there is no outside interference? (b) What is the socially optimal amount of research? (c) Suggest a tax or subsidy that would induce the firm to produce the socially optimal amount of research, then show that this tax does indeed cause the firm to produce the socially optimal amount of research.arrow_forward
- Suppose that the demand for gold is given by the equation P = 150− 3Q and the marginal private costs of gold production is given by the equation MPC = 7Q while the marginal environmental degradation costs associated with gold production which are borne by the gold producers are given by the equation MEC = 5Q (a) What quantity of gold will be produced in a free unregulated market? (b) What quantity of gold should be produced if the goal is to obtain an efficient allocation of gold? Explain. (c) What level of Pigovian tax, applied to each unit of gold production, would assure that the amount of gold produced would equal the efficient allocation? (d) Use your answers to (a) and (b) above to explain and illustrate, what generally happens to the allocation of commodities that cause pollution externalities (gold in this case)arrow_forward-Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?arrow_forward2. Define externalities. Discuss how the presence of externalities might affect the allocation of resources by a purely competitive industry.arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Principles of MicroeconomicsEconomicsISBN:9781305156050Author:N. Gregory MankiwPublisher:Cengage Learning
Principles of Microeconomics
Economics
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:Cengage Learning