11:23 Friday Assignment for November 8.... Friday Assignment for October 8 A village has six residents, each of whom has accumulated savings of $100. Each villager can use this money either to by a government bond that pays 15% interest per year or to buy a year-old llama, send it on to the commons to graze, and sell it after one year. The price the villager gets for the 2-year-old llama depends on the quality of the fleece it grows while grazing on the commons. That in turn depends on the animal's access to grazing, which depends on the number of llamas sent to the commons, as shown in the following table: Number of llamas on Price per 2-year-old llama (S) the commons 112 2 118 116 4. 114 5 112 6 109 The villages make their investment decision one after another and their decisionss or public. 1. If each villager decides individually how to invest, how many llamas will be sent to the commons, and what will be the resulting village income? 2. What is the socially optimal number of llamas for this village? Why is that different from the actual number? What will village income be if the socially optimal number of llamas were sent on to the commons? 3. The village committee votes to auction the right graze llamas on the commens to the highest bidder. Assuming villagers can both borrow and lend at 15% annual interest, how much will right sell at auction? How will the new owner use the right, and what will be the resulting village income? Hint: Start by completing this chart before you answer the questions Number of llamas Price per 2-year- Income per llama old llama ($) Total village income Marginal village income ($/yr) on the commons ($/yr) ($/yr) 22 1 112 22 22 2 118 116 3 4 114 5 112 6 109 Dashboard Calendar Notifications Inbox To Do
11:23 Friday Assignment for November 8.... Friday Assignment for October 8 A village has six residents, each of whom has accumulated savings of $100. Each villager can use this money either to by a government bond that pays 15% interest per year or to buy a year-old llama, send it on to the commons to graze, and sell it after one year. The price the villager gets for the 2-year-old llama depends on the quality of the fleece it grows while grazing on the commons. That in turn depends on the animal's access to grazing, which depends on the number of llamas sent to the commons, as shown in the following table: Number of llamas on Price per 2-year-old llama (S) the commons 112 2 118 116 4. 114 5 112 6 109 The villages make their investment decision one after another and their decisionss or public. 1. If each villager decides individually how to invest, how many llamas will be sent to the commons, and what will be the resulting village income? 2. What is the socially optimal number of llamas for this village? Why is that different from the actual number? What will village income be if the socially optimal number of llamas were sent on to the commons? 3. The village committee votes to auction the right graze llamas on the commens to the highest bidder. Assuming villagers can both borrow and lend at 15% annual interest, how much will right sell at auction? How will the new owner use the right, and what will be the resulting village income? Hint: Start by completing this chart before you answer the questions Number of llamas Price per 2-year- Income per llama old llama ($) Total village income Marginal village income ($/yr) on the commons ($/yr) ($/yr) 22 1 112 22 22 2 118 116 3 4 114 5 112 6 109 Dashboard Calendar Notifications Inbox To Do
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:11:23
Friday Assignment for November 8....
Friday Assignment for October 8
A village has six residents, each of whom has
accumulated savings of $100. Each villager can use this
money either to by a government bond that pays 15%
interest per year or to buy a year-old llama, send it on to
the commons to graze, and sell it after one year. The
price the villager gets for the 2-year-old llama depends on
the quality of the fleece it grows while grazing on the
commons. That in turn depends on the animal's access to
grazing, which depends on the number of llamas sent to
the commons, as shown in the following table:
Number of llamas on
Price per 2-year-old
llama (S)
the commons
112
2
118
116
4.
114
5
112
6
109
The villages make their investment decision one after
another and their decisionss or public.
1. If each villager decides individually how to invest, how
many llamas will be sent to the commons, and what
will be the resulting village income?
2. What is the socially optimal number of llamas for this
village? Why is that different from the actual number?
What will village income be if the socially optimal
number of llamas were sent on to the commons?
3. The village committee votes to auction the right graze
llamas on the commens to the highest bidder.
Assuming villagers can both borrow and lend at 15%
annual interest, how much will right sell at auction?
How will the new owner use the right, and what will be
the resulting village income?
Hint: Start by completing this chart before you answer the
questions
Number of llamas Price per 2-year- Income per llama
old llama ($)
Total village
income
Marginal
village income
($/yr)
on the commons
($/yr)
($/yr)
22
1
112
22
22
2
118
116
3
4
114
5
112
6
109
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