Problem 2: Quota One method of dealing with a negative externality is to set quotas on the consumption of the good. Suppose that there are only two consumers of a good with a negative externality, Nicole and Andrew. Their willingness-to-pay schedules are given below. Nicole's willingness to Andrew's willingness to Quantity 1 рay 50 рay 25 2 40 20 30 15 4 20 10 10 [Note on interpreting the table - the willingness to pay that is listed is for that specific unit of the good. For example, Nicole is willing to pay $50 for her fırst unit, $40 for her 2nd, and so on.] Suppose the government wishes to limit consumption of this good to 6 units, and thus sets a consumption quota of 3 units on each consumer. If the price of the good is $15, each consumer will purchase the three units allowed. What will be the total consumer surplus in this market? $ Now imagine that the quota is instead allocated based on willingness to pay (with the price remaining $15). With this allocation, Nicole would be able to purchase 4 units, and Andrew would purchase 2. What would be the total consumer surplus in this case? $
Problem 2: Quota One method of dealing with a negative externality is to set quotas on the consumption of the good. Suppose that there are only two consumers of a good with a negative externality, Nicole and Andrew. Their willingness-to-pay schedules are given below. Nicole's willingness to Andrew's willingness to Quantity 1 рay 50 рay 25 2 40 20 30 15 4 20 10 10 [Note on interpreting the table - the willingness to pay that is listed is for that specific unit of the good. For example, Nicole is willing to pay $50 for her fırst unit, $40 for her 2nd, and so on.] Suppose the government wishes to limit consumption of this good to 6 units, and thus sets a consumption quota of 3 units on each consumer. If the price of the good is $15, each consumer will purchase the three units allowed. What will be the total consumer surplus in this market? $ Now imagine that the quota is instead allocated based on willingness to pay (with the price remaining $15). With this allocation, Nicole would be able to purchase 4 units, and Andrew would purchase 2. What would be the total consumer surplus in this case? $
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Answer question attached and parts below:
b) Based on your answers above, the initial allocation of 3 permits per person was (efficient, inefficient, or indeterminate)
c) Allocating quota units to those who place the highest value on the good
- will keep surplus the same
- will not increase surplus
- can increase surplus
![Problem 2: Quota
One method of dealing with a negative externality is to set quotas on the consumption of
the good. Suppose that there are only two consumers of a good with a negative externality,
Nicole and Andrew. Their willingness-to-pay schedules are given below.
Nicole's willingness to Andrew's willingness to
Quantity
1
рay
50
рay
25
2
40
20
3
30
15
4
20
10
10
[Note on interpreting the table - the willingness to pay that is listed is for that specific unit of the
good. For example, Nicole is willing to pay $50 for her first unit, $40 for her 2nd, and so on.]
Suppose the government wishes to limit consumption of this good to 6 units, and thus sets
a consumption quota of 3 units on each consumer. If the price of the good is $15, each
consumer will purchase the three units allowed.
What will be the total consumer surplus in this market?
2$
Now imagine that the quota is instead allocated based on willingness to pay (with the price
remaining $15). With this allocation, Nicole would be able to purchase 4 units, and Andrew
would purchase 2.
What would be the total consumer surplus in this case?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc777eb6c-5f00-442c-a5ae-30c50b2299ca%2F123bf527-8606-476b-8a80-c3ada7ad270e%2Fa38h5oj_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 2: Quota
One method of dealing with a negative externality is to set quotas on the consumption of
the good. Suppose that there are only two consumers of a good with a negative externality,
Nicole and Andrew. Their willingness-to-pay schedules are given below.
Nicole's willingness to Andrew's willingness to
Quantity
1
рay
50
рay
25
2
40
20
3
30
15
4
20
10
10
[Note on interpreting the table - the willingness to pay that is listed is for that specific unit of the
good. For example, Nicole is willing to pay $50 for her first unit, $40 for her 2nd, and so on.]
Suppose the government wishes to limit consumption of this good to 6 units, and thus sets
a consumption quota of 3 units on each consumer. If the price of the good is $15, each
consumer will purchase the three units allowed.
What will be the total consumer surplus in this market?
2$
Now imagine that the quota is instead allocated based on willingness to pay (with the price
remaining $15). With this allocation, Nicole would be able to purchase 4 units, and Andrew
would purchase 2.
What would be the total consumer surplus in this case?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education