Micro Chapter 17

The government is involved in providing many goods and services. For each of the goods or services listed, determine whether it is rival or nonrival in consumption and whether it is excludable or nonexcludable. What type of good is it? Without government involvement, would the quantity provided be efficient, inefficiently low, or inefficiently high? e) A lighthouse on the coast

. A lighthouse is nonrival in consumption (if I use the lighthouse to steer my boat away from rocks, you can still use the same lighthouse) and nonexcludable (boats cannot selectively be made to pay for the services provided by the lighthouse). So the lighthouse is a public good. Because of the free-rider problem, the privately provided quantity would be inefficiently low.

The government is involved in providing many goods and services. For each of the goods or services listed, determine whether it is rival or nonrival in consumption and whether it is excludable or nonexcludable. What type of good is it? Without government involvement, would the quantity provided be efficient, inefficiently low, or inefficiently high? d) A congested interstate highway without tolls

A congested interstate highway without tolls is rival in consumption (if I use the highway, I create a negative externality for you—more congestion; that is, I reduce your benefit from the highway) but nonexcludable (drivers can use the highway without paying for access). So the highway is a common resource. Because of nonexcludability, a free-rider problem exists, and the privately provided quantity of highways would be inefficiently low

The accompanying table shows six consumers' willingness to pay (his or her individual marginal benefit) for one MP3 file copy of a Jay-Z album. The marginal cost of making the file accessible to one additional consumer is constant, at zero. c)Pantster is shut down for copyright law infringement. In order to download the file, consumers now have to pay $4.99 at a commercial music site. Which consumers will download the file? What will be the total consumer surplus to those consumers? How much producer surplus accrues to the commercial music site? What is the total surplus? What is the deadweight loss from the new pricing policy?

At a price of $4.99, Bhagesh, Denzel, and Emma will download the file. Bhagesh's individual consumer surplus will be $10.01, Denzel's $5.01, and Emma's $0.01. So total consumer surplus is $10.01 + $5.01 + $0.01 = $15.03. Producer surplus is 3 × $4.99 = $14.97. So total surplus is $15.03 + $14.97 = $30. This is $7 less than in part b. So the deadweight loss from making the good artificially scarce is $7.

The accompanying table shows Tanisha's and Ari's individual marginal benefit of different amounts of street cleanings per month. Suppose that the marginal cost of street cleanings is constant at $9 each. a)If Tanisha had to pay for street cleaning on her own, how many street cleanings would there be?

If Tanisha had to pay for street cleaning on her own, she would pay for the street to be cleaned once: her individual marginal benefit of the first cleaning, $10, exceeds the marginal cost of $9. However, she would not pay for more than one: her marginal benefit of the second cleaning is $6, less than the marginal cost of $9.

Software has historically been an artificially scarce good—it is nonrival because the cost of replication is negligible once the investment to write the code is made, but software companies make it excludable by charging for user licenses. But then open-source software emerged, most of which is free to download and can be modified and maintained by anyone. a)Discuss the free-rider problem that might exist in the development of open-source software. What effect might this have on quality? Why does this problem not exist for proprietary software, such as the products of a company like Microsoft or Adobe?

In principle, the developers of open-source software are not strictly monitored. Some developers may shirk and write poor code in the hope that others in the development community will correct their mistakes. A free-rider problem is created because individual developers are not held responsible for their code, potentially resulting in poor quality. Microsoft and Adobe, however, are responsible for the quality of their software; they risk losing business and profits if their product is substandard. So company management enforces quality-control measures that mitigate the free-rider problem.

The government is involved in providing many goods and services. For each of the goods or services listed, determine whether it is rival or nonrival in consumption and whether it is excludable or nonexcludable. What type of good is it? Without government involvement, would the quantity provided be efficient, inefficiently low, or inefficiently high? c) Regulations limiting pollution

Regulations limiting pollution are nonrival in consumption (my benefit from these regulations is not diminished by your benefit) and nonexcludable (people cannot be selectively excluded from benefiting from these regulations—that is, excluded from breathing clean air or drinking clean water). So these regulations are a public good. Because of the free-rider problem, the privately provided quantity of these regulations would be inefficiently low

The accompanying table shows six consumers' willingness to pay (his or her individual marginal benefit) for one MP3 file copy of a Jay-Z album. The marginal cost of making the file accessible to one additional consumer is constant, at zero. b)All six consumers are able to download the file for free from a file-sharing service, Pantster. Which consumers will download the file? What will be the total consumer surplus to those consumers?

Since each of the six consumers has a marginal benefit greater than zero, all six will download the file. Adriana's individual consumer surplus will be $2, Bhagesh's $15, Chizuko's $1, Denzel's $10, Emma's $5, and Frank's $4. The total consumer surplus is therefore $2 + $15 + $1 + $10 + $5 + $4 = $37.

The accompanying table shows six consumers' willingness to pay (his or her individual marginal benefit) for one MP3 file copy of a Jay-Z album. The marginal cost of making the file accessible to one additional consumer is constant, at zero. a)What would be the efficient price to charge for a download of the file?

Since the marginal cost of delivering the good to one additional consumer is zero, the efficient price would be zero

The government is involved in providing many goods and services. For each of the goods or services listed, determine whether it is rival or nonrival in consumption and whether it is excludable or nonexcludable. What type of good is it? Without government involvement, would the quantity provided be efficient, inefficiently low, or inefficiently high? a) Street signs

Street signs are nonrival in consumption (if I make use of a street sign, that does not reduce your opportunity to use it) and nonexcludable (no one can prevent another person from making use of a street sign). So street signs are a public good. Because of the free-rider problem, the quantity provided privately would be inefficiently low

The accompanying table shows Tanisha's and Ari's individual marginal benefit of different amounts of street cleanings per month. Suppose that the marginal cost of street cleanings is constant at $9 each. c)Consider the optimal number of street cleanings. The last street cleaning of that number costs $9. Is Tanisha willing to pay for that last cleaning on her own? Is Ari willing to pay for that last cleaning on his own?

Tanisha on her own would be willing to pay only $6 (her individual marginal benefit) for the second cleaning. Ari on his own would be willing to pay only $4 (his individual marginal benefit) for the second cleaning. So neither would be individually willing to pay for the second cleaning.

Software has historically been an artificially scarce good—it is nonrival because the cost of replication is negligible once the investment to write the code is made, but software companies make it excludable by charging for user licenses. But then open-source software emerged, most of which is free to download and can be modified and maintained by anyone. b)Some argue that open-source software serves an unsatisfied market demand that proprietary software ignores. Draw a typical diagram that illustrates how proprietary software may be underproduced. Put the price and marginal cost of software on the vertical axis and the quantity of software on the horizontal axis. Draw a typical demand curve and a marginal cost curve (MC) that is always equal to zero. Assume that the software company charges a positive price, P, for the software. Label the equilibrium point and the efficient point

The accompanying diagram shows a demand curve, D, and a marginal cost curve that is constant and always equal to zero, MC. The equilibrium is at point EMKT , with a quantity, QMKT , that is lower than the efficient quantity, QOPT

The accompanying table shows Tanisha's and Ari's individual marginal benefit of different amounts of street cleanings per month. Suppose that the marginal cost of street cleanings is constant at $9 each. b)Calculate the marginal social benefit of street cleaning. What is the optimal number of street cleanings?

The accompanying table shows the marginal social benefit of street cleaning. The optimal number of street cleanings is 2: the marginal social benefit of the second cleaning is $10, which exceeds the marginal cost of $9. A third cleaning would be inefficient because its marginal social benefit is $3, less than the marginal cost of $9.

The government is involved in providing many goods and services. For each of the goods or services listed, determine whether it is rival or nonrival in consumption and whether it is excludable or nonexcludable. What type of good is it? Without government involvement, would the quantity provided be efficient, inefficiently low, or inefficiently high? b) Amtrak rail service

b. Amtrak rail service is rival in consumption (if I consume a seat, you cannot) and excludable (you cannot consume the service if you do not have a ticket). Although Amtrak rail service is a private good, it creates a positive externality in the form of reduced road and air traffic congestion. The market would provide an inefficiently low level of passenger rail service, so there is a justification for government intervention to support Amtrak