Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. The public's willingness to pay for the 4th acre of parkland is Price (S) 12 12 10 CO 8 2 6 Price ($) 12 12 10 8 2 Price (S) 12 10 2 8 6 0 2 4 6 8 10 Citizen X's Demand 0 2 4 6 8 10 Citizen Y's Demand 0 2 4 6 8 10 Citizen Z's Demand $14 $26 $8 520

Under which circumstances does line tax burden fall entirely on consumers?

Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table 12.8 shows the total costs of cleaning up the sewage to different levels, together with the total benefits of doing so. (Benefits include environmental, recreational, health, and industrial benefits.) Using the information in Table 12.8, calculate the marginal costs and marginal benefits of reducing sewage emissions for this city. See Production, Costs and Industry Structure if you need a refresher on how to calculate marginal costs. What is the optimal level of sewage for this city? Why not just pass a law that films can emit zero sewage? After all, the total benefits of zero emissions exceed the total costs.

HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow HighFlyer Airlines to give passengers more comfort and sell more tickets at a higher price. However, redesigning the cabin means rethinking many other elements of the airplane as well, like engine and luggage placement, and the most efficient shape of the plane for moving through the air. HighFlyer Airlines has developed a list of possible methods to increase cabin space, along with estimates of how these approaches would affect the planes operating costs and ticket sales. Based on these estimates, Table 13.5 shows the value of R, how much should the firm invest in R on top of the private return; that is, an R private return to HighFlyer Airlines would have a 9 social return. How much investment is socially optimal at the 6 interest rate?

What is an externality?