n some countries (eg., Denmark and the Netherlands) people often commute by bicycle instead of cars, and some argue that we ought to promote such behavior in the United States. These proponents argue that there are private as well as social benefits from biking, including improved health, reduced traffic congestion, and reduced pollution. People differ in their willingness to bike instead of drive. Suppose that the demand curve for biking commute trips in Hawal is portrayed in the demand curve in the attached graph (MWTP per trip =- 25 - Q/10, where Q is thousands of trips per day in the State). This private marginal willingness to pay (MWTP) embodies the enjoyment people get from riding to work relative to driving, perceived private health benefits, as well as fuel and other automobile-related expenses. Suppose the private cost per bike trip is $2.50, which includes the amortized cost of the bike plus maintenance and extra time costs. In addition, suppose that there are $5.00 per trip in external benefits to society from each trip, as biking instead of driving reduces air pollution and traffic congestion. (a) In the absence of regulation, there will be an equilibrium of____thousand bike trips per dey and the equilibrium price per trip will be_ dollars. At this equilibrium cyclists collectively enjoy consumers surplus ofdollars per day (keep in mind that quantity is given in terms of thousands of trips per day). (b) Due to the positive externality, the marginal social benefits of each bike trip at the equilibrium in (a) is equal to_ while bikers collectively create external benefits for society equal to__dollars per day

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In some countries (eg., Denmark and the Netherlands) people often commute by bicycle instead of cars, and some argue that we ought to promote such behavior in the United States. These proponents argue that there are private as well as social benefits from biking, including improved health, reduced traffic congestion, and reduced pollution. People differ in their willingness to bike instead of drive. Suppose that the demand curve for biking commute trips in Hawal is portrayed in the demand curve in the attached graph (MWTP per trip =- 25 - Q/10, where Q is thousands of trips per day in the State). This private marginal willingness to pay (MWTP) embodies the enjoyment people get from riding to work relative to driving, perceived private health benefits, as well as fuel and other automobile-related expenses. Suppose the private cost per bike trip is $2.50, which includes the amortized cost of the bike plus maintenance and extra time costs. In addition, suppose that there are $5.00 per trip in external benefits to society from each trip, as biking instead of driving reduces air pollution and traffic congestion. (a) In the absence of regulation, there will be an equilibrium of______thousand bike trips per dey and the equilibrium price per trip will be_____ dollars. At this equilibrium cyclists collectively enjoy consumers surplus of____dollars per day (keep in mind that quantity is given in terms of thousands of trips per day). (b) Due to the positive externality, the marginal social benefits of each bike trip at the equilibrium in (a) is equal to_____ while bikers collectively create external benefits for society equal to____dollars per day

$ Per Trip
F5
30
25
O Search
20
15
10
5
0
F6
0
Biking to Work/School Market
Demand (Private MWTP): MWTP = 25-Q/10
External marginal benefit per trip = 5
Private marginal cost per trip=2.5
F7
50
F8
100
8
LD
Q, Thousand Trips Per Day
150
F9
09
200
F10
---
250
F11
hulu
0:+
300
F12
PrtSc
Insert

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