HW17: Homework - Ch. 17: Public Goods and Common Resources
Bluefin tuna is a fish that is in high demand from consumers. Overfishing of this species, particularly in the Mediterranean Sea, has led to the strong possibility of extinction. The graph illustrates the marginal social cost (MSC), marginal private cost (MPC), and marginal social benefit (MSB) for a hypothetical representation of the Bluefin tuna market. Use the graph to answer the questions. If this market is unregulated, what will be the equilibrium price and quantity? price: $ _________ quantity: ________ lb Why is the market equilibrium not socially optimal?
$40 5000 lb MSC is greater than MSB at the market equilibrium.
Wikipedia is one of the world's largest and most popular public goods. Students around the world are able to access archives of information for homework, general knowledge, and random wasting of time on the internet. However, Wikipedia is not free to operate, as it requires money to pay its staff and maintain its servers. Free riding is one of the biggest issues for Wikipedia, as millions of people use it daily without incurring any of the costs. Assuming Wikipedia thinks they have too many free riders, which solution would NOT reduce, or offset, the free rider problem?
Wikipedia creates a duplicate website, Wekepedia, with the same content as Wikipedia, but costs $25 a year. Wikipedia would remain free to the public.
A __________ is a person who _________ a public good that others __________
free rider; enjoys; pay for
Identify the characteristics that describe each good listed below. Note that each good will be described by two characteristics. "Rivalrous" is also referred to as "rival in consumption." Consider only the immediate benefits and costs, not any externalities. national defense Pay-Per-View cable television a Hot Pocket sandwich private classroom education pajamas a unicycle
national defense nonexcludable nonrivalrous Pay-Per-View cable television excludable nonrivalrous a Hot Pocket sandwich excludable private classroom education excludable rivalrous pajamas excludable rivalrous a unicycle excludable rivalrous
Complete the sentences top accurately describe each type of good. Assume that the good is traded in a market without government intervention. A market for a private good with no externalities produces an _____________ quantity of goods. A private good is ____________ in consumption, and is _________________ A market for an artificially scare good, also known as a club good, produces ______________ an quantity. A club good is _______________ in consumption, and is ________________ A market for a common resource produces an ______________ quantity. A common resource is ____________ in consumption and is _____________________ A market for a public good produces _______________ an quantity. A public good is ____________________ in consumption and is ____________________
private good: efficient; rival; excludable artificially scare good: inefficient; nonrival; excludable common resource: inefficient; rival; nonexcludable public good: inefficient; nonrival; nonexcludable
The graph depicts the market for digital copies of a popular song. The digital music file is an artificially scarce good. Suppose the producer charges $2.50 per download. What is the resulting deadweight loss?
$62.5
Consider the table. Number of street lamps1234567Marginal benefit (in $)3026221814106 Suppose that a small town wants to install street lamps, which are nonrival in consumption and nonexcludable. Each of the 25 people in the town value street lamps according to the given schedule. Street lamps each cost $250 to install. Use this information to answer the questions. What is the socially optimal number of street lamps? Suppose that 20 of the 25 townspeople decide that they will not help pay for street lamps, and will instead enjoy (for free) the street lamps built by the other five people. What is the maximum number of street lamps that will be built by the remaining five people? Suppose the town government decides to build street lamps and pay for the street lamps through taxation. How much should each person be taxed to pay for the optimal number of street lamps if everyone is taxed equally?
6 street lamps 0 street lamps $60 Since the social marginal benefit of the sixth street lamp is equal to the marginal cost of the street lamps ($250), the optimal number of street lamps must be six. When a group of only five townspeople are willing to contribute toward the purchase of lamps, the marginal benefit of the first lamp for the group is only 5×$30=$150. Since this is less than the marginal cost of the lamps, the group will not buy any. Finally, the government will buy six street lamps (the socially optimal amount). When the government buys six street lamps, the total bill is 6×$250=$1,500. Dividing the tax bill equally among townspeople means that each payspayment per individual=tax bill totalnumber of townspeople=$150025=$60
The hypothetical city of Hurstville is trying to decide how many city beautification projects should be approved each year. These projects involve planting gardens, commissioning murals, and building fountains. The city has two types of citizens. Type B citizens appreciate beauty more than type A citizens. There is an equal number of each type of citizen. The accompanying graph depicts each type of citizen's marginal benefit for city beautification projects. The average cost of each project is $400. Use the information in the graph to answer the questions. Use the interactive points to draw the marginal social benefits (MSB) curve. What is the optimal quantity of city beautification projects? City beautification is a public good because:
Graph: (1, 800); (2, 600); (3, 400); (4, 200); (5, 100); (6, 0) 3 projects it is nonrival in consumption and nonexcludable.
The graph represents the hypothetical market for shrimp in a coastal village. Since there are no restrictions on catching shrimp in public waters in this village, shrimp are a common resource. Without any policy intervention, the equilibrium amount of shrimp caught and sold each day is 7 kg. However, the socially optimal amount of shrimp is 4 kg. Adjust the supply curve and marginal social cost curve to reflect the market quantity and the socially optimal quantity. By how much is the market price below the socially optimal price? If necessary, round to the nearest dollar. price difference:$ __________________ /kg Suppose the government imposes a Pigouvian tax. What is the optimal size of the tax for each kilogram of shrimp? optimal tax:$ __________________ /kg
MSC Line: (1, 6); (7, 14) S-Line: Intersect with D-Line (7, 7) price difference:$ 3/kg optimal tax:$ 7 /kg
Suppose that a small company is thinking of putting plants in their lobby for employees to view and enjoy. Since the plants are to be viewed by employees, the plants are non-excludable (it is infeasible to move a plant each time a specific individual walks by) and non-rival in consumption (if one worker looks at the plant, it does not prevent another from doing so as well). The company employs three workers: Tim, Alex, and Sharon. The company is thinking about buying up to three plants, and wants to know how much workers would enjoy each plant. For Tim, the first plant has a benefit of $17 per day, the second plant has a benefit of $13 per day, and the third plant has a benefit of $8 per day. For Alex, the first plant has a benefit of $12 per day, the second has a benefit of $10 per day, and the third has a benefit of $6 per day. For Sharon, the first plant has a benefit of $8 per day, the second has a benefit of $5 per day, and the third has a benefit of $2 per day. Given that no one else will see the plants, no one else values the plants in the lobby. What is the marginal social benefit of the first plant? What is the marginal social benefit of the second plant? What is the marginal social benefit of the third plant?
Marginal Social Benefit = Sum of all individual Benefit 17+12+8= 37 $37 13+10+5= 28 $28 8+6+2= 16 $16
Which of the scenarios are examples of free riding? a. Bob can pay to support his local public radio station, which depends on donations to be as effective as possible. Bob listens to the radio station several hours per day but never donates since he suspects that other people will donate enough to keep the station on the air. b. Drew always buys the lunch special for $5 at the restaurant across the street from where he works. If he decided to eat at the restaurant after 3:00 p.m., however, he would be unable to get the lunch special, and would instead have to pay $10 for the same food. c. Jim is working on a group project for a class in which he wants a high grade. However, since the grades are assigned to the group as a whole and he knows that the other group members will pick up most of the extra work, Jim calls in sick and plays video games on his Dream Station 64. d. Karl never drives at night, and gets no benefit from street lamps at all. Street lamps are nonexcludable and nonrival in consumption. When the community group tries to collect money to build street lamps, Karl does not donate any money.
a. free-riding b. not free-riding c. free-riding d. not free-riding
The graph depicts the market for cable where there is one natural monopoly; AC represents average (total) cost, D represents market demand, and MR represents marginal revenue. Assume that the marginal cost is equal to 0. Suppose that before the cable company lays any cable, the government decides to regulate the monopoly by setting the price. What is the lowest price that the government can impose while ensuring that the cable company enters the market? $ ___________ What will a monopolist charge in the absence of any regulation?
$2 $4
Select the best definition of a public good.
a good that is nonexcludable and nonrival in consumption
