4. Suppose that the economy contains three consumers, whose demand curves for the public good zare given byDI = 150/zD2 = 100/zD350/zThe cost per unit of z is c = 60.a) Find z*, the socially optimal level of z, .b) Compute the Lindahl taxes, which generate unanimous agreement on z*. Verify thateach consumer prefers z* when faced with these taxes.

D1 = P1 = 150/z D2 = P2 = 100/z D3 = P3 = 50/z Cost per unit of z = 60 In case of public good,…

Answered: 4. Suppose that the economy contains…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider two consumers with preferences Where Ti is the tax levied in jurisdiction i and Gi is public good provision. Assume a2 > a1. The level of public good in each region is decided by majority voting of its residents. If there are two residents, assume that the supply is the average of the preferred quantities of the residents. a. Show that the preferred quantity of public good for consumer h if they locate in jurisdiction i is given by Gh = niah; where ni is the jurisdiction population. b. Assuming consumers correctly predict the consequences of location choice, show that there is no equilibrium if c. Show that there is an equilibrium if consumers take provision levels as given.
Consider a situation where Ron (R) and Nancy (N) have demands for a public good that can be represented by the following functions: D_R: Q R = 100-2P_R D_N: Q_N = 50-2P_N If Ron and Nancy are the only two consumers of this private good and the supply function for the good is: S: Q = -5 + P What is the social optimum quantity of the public good? Answer:
According to marginal analysis, in a market that experiences a positive externality, the market (private) players would ________________________ to the socially optimal output level. A. over-produce an output level relative B. under-produce an output level relative C. exactly produce an output level equal
For public goods such as bus service, sewage services, power grids,water systems, roads, vaccines, education, law and order, reliableknowledge, and many others, the marginal cost of providing anamount q, MC(q), is positive but decreasing. Suppose that thedemand curve for the good is D(q), i.e. D(q) is societal willingnessto pay for the marginal unit of the public good at level q, D(q) 0and D0(q) < 0. This problem asks you to compare several methodsof deciding how much q to provide.(a) Produce using the competitive rule, p = MC(q). The solutionis denoted qcomp ∗ .(b) Produce as a Monopolist, i.e. solvemaxq≥0 qD(q) - C(q):The solution is denoted qMon ∗ .(c) Produce so as to maximize social surplus from the industry, i.e.solve the problemmaxq≥0 [CS(q) + qD(q)] - C(q);where CS(q) = R0q[D(x) - D(q)] dx is consumer surplus. Thesolution is denoted qISS ∗ .(d) Produce so as to maximize the total social surplus, i.e. solve theproblemmaxq≥0 [B(q) + CS(q) + qD(q)] - C(q);
A Consider agent A with (inverse) demand curve for the public good P₁ = 60 - 2QA and agent B with inverse demand PB = 90 - 5QB, where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p's]
Let Q be the quantity of natural gas in tons from fracking. Assume fracking imposes a negative externality of $24 per ton. The private demand for natural gas from fracking is P = 200 - 4Q while the private supply curve is P = 20 + 2Q. If the government imposes a $24 tax per ton of natural gas from fracking, what is the change in the total surplus from before to after the imposition of the tax? O -$672. O $48. O $672. -$48.
Suppose the production of widgets causes a negative externality of $12 per unit. The current market price is $20 and market quantity is 35 units. What should be the correct Pigovian tax to correct the negative externality?
Currently, 160 units of a pure public good have been provided. Alex’s demand curve for the public good is 40 −0.2q. If the price of the good is 8.5, what quantity of the public good, q, would Alex be willing to purchase?
The government is considering regulating a market that causes externalities on other producers and/or consumers. The government will charge a Pigouvian tax t equal to the marginal external cost of production: a) Indicate the benefit (reduction in deadweight loss) that occurs. due to the tax. b) What is the change in consumer surplus, producer surplus, government surplus and the overall social surplus from imposing the regulation?
True or False? For a perfectly competitive market (with no externalities) where a positive per unit tax has been imposed by the government, the sum of consumer surplus, producer surplus, and tax revenue is always less than the sum of consumer surplus and producer surplus before the tax is imposed. If true, is it always the case that government intervention reduces total social welfare? If false, provide a numerical example where a positive per unit tax increases total social welfare in a perfectly competitive market (with no externalities). Briefly explain
A tax on water pollution is proposed for four factories in a manufacturing town of 110,000 people. The Select Board estimates the tax will reduce pollution to such an extent that it will benefit each resident by an equivalent of $200. The tax will also reduce profits to the town's four large factories by $2,000,000 each. How much should the town's citizens be willing to spend to ensure the passage of the tax?
Kindly explain the Public Goods Theory with example.

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