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A village has six residents, each of whom has accumulated savings of $100. Each villager can use this money either to buy a government bond that pays 18 percent interest per year or to buy a year-old llama, send it onto the commons to graze, and sell it after 1 year. The price the villager gets for the 2-year-old llama depends on the quality of the fleece It grows while grazing on the commons. That in turn depends on the animal's access to grazing, which depends on the number of llamas sent to the commons, as shown in the following table: Number of 11amas on the commons Price per 2- year-old 11ama ($) 1 125 2 119 3 116 4 113 5 6 111 109 The villagers make their investment decisions one after another, and their decisions are public. a. If each villager decides Individually how to Invest, how many llamas will be sent onto the commons, and what will be the resulting village Income? Number of llamas: [ 20 Instructions: Enter your response as a whole number. Village Income: $ 110 b. What is the socially optimal number of llamas for this village? Socially optimal number of llamas: 1 What would village Income be if the socially optimal number of llamas were sent onto the commons? Instructions: Enter your response as a whole number. Village Income: $ 115 c. The village committee votes to auction the right to graze llamas on the commons to the highest bidder. Assuming villagers can both borrow and lend at 18 percent annual Interest, how much will the right sell for at auction? Instructions: Enter your response rounded to two decimal places. $ What will be the resulting village income? Instructions: Enter your response as a whole number. Village Income: $

A village has six residents, each of whom has accumulated savings of $100. Each villager can use this money either to buy a government bond that pays 18 percent interest per year or to buy a year-old llama, send it onto the commons to graze, and sell it after 1 year. The price the villager gets for the 2-year-old llama depends on the quality of the fleece It grows while grazing on the commons. That in turn depends on the animal's access to grazing, which depends on the number of llamas sent to the commons, as shown in the following table: Number of 11amas on the commons Price per 2- year-old 11ama ($) 1 125 2 119 3 116 4 113 5 6 111 109 The villagers make their investment decisions one after another, and their decisions are public. a. If each villager decides Individually how to Invest, how many llamas will be sent onto the commons, and what will be the resulting village Income? Number of llamas: [ 20 Instructions: Enter your response as a whole number. Village Income: $ 110 b. What is the socially optimal number of llamas for this village? Socially optimal number of llamas: 1 What would village Income be if the socially optimal number of llamas were sent onto the commons? Instructions: Enter your response as a whole number. Village Income: $ 115 c. The village committee votes to auction the right to graze llamas on the commons to the highest bidder. Assuming villagers can both borrow and lend at 18 percent annual Interest, how much will the right sell for at auction? Instructions: Enter your response rounded to two decimal places. $ What will be the resulting village income? Instructions: Enter your response as a whole number. Village Income: $

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter12: Environmental Protection And Negative Externalities
Section: Chapter Questions
Problem 10SCQ: Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table 12.8 shows the...
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A village has six residents, each of whom has accumulated savings of $100. Each villager can use this money either to buy a government bond that pays 18 percent interest per year or to buy a year-old llama, send it onto the commons to graze, and sell it after 1 year. The price the villager gets for the 2-year-old llama depends on the quality of the fleece It grows while grazing on the commons. That in turn depends on the animal's access to grazing, which depends on the number of llamas sent to the commons, as shown in the following table: Number of 11amas on the commons Price per 2- year-old 11ama ($) 1 125 2 119 3 116 4 113 5 6 111 109 The villagers make their investment decisions one after another, and their decisions are public. a. If each villager decides Individually how to Invest, how many llamas will be sent onto the commons, and what will be the resulting village Income? Number of llamas: [ 20 Instructions: Enter your response as a whole number. Village Income: $ 110 b. What is the socially optimal number of llamas for this village? Socially optimal number of llamas: 1 What would village Income be if the socially optimal number of llamas were sent onto the commons? Instructions: Enter your response as a whole number. Village Income: $ 115 c. The village committee votes to auction the right to graze llamas on the commons to the highest bidder. Assuming villagers can both borrow and lend at 18 percent annual Interest, how much will the right sell for at auction? Instructions: Enter your response rounded to two decimal places. $ What will be the resulting village income? Instructions: Enter your response as a whole number. Village Income: $
Transcribed Image Text:A village has six residents, each of whom has accumulated savings of $100. Each villager can use this money either to buy a government bond that pays 18 percent interest per year or to buy a year-old llama, send it onto the commons to graze, and sell it after 1 year. The price the villager gets for the 2-year-old llama depends on the quality of the fleece It grows while grazing on the commons. That in turn depends on the animal's access to grazing, which depends on the number of llamas sent to the commons, as shown in the following table: Number of 11amas on the commons Price per 2- year-old 11ama ($) 1 125 2 119 3 116 4 113 5 6 111 109 The villagers make their investment decisions one after another, and their decisions are public. a. If each villager decides Individually how to Invest, how many llamas will be sent onto the commons, and what will be the resulting village Income? Number of llamas: [ 20 Instructions: Enter your response as a whole number. Village Income: $ 110 b. What is the socially optimal number of llamas for this village? Socially optimal number of llamas: 1 What would village Income be if the socially optimal number of llamas were sent onto the commons? Instructions: Enter your response as a whole number. Village Income: $ 115 c. The village committee votes to auction the right to graze llamas on the commons to the highest bidder. Assuming villagers can both borrow and lend at 18 percent annual Interest, how much will the right sell for at auction? Instructions: Enter your response rounded to two decimal places. $ What will be the resulting village income? Instructions: Enter your response as a whole number. Village Income: $
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