Suppose that speeding imposes externalities on other people resulting in a social cost of $50. A town is considering hiring an extra police officer to give out speeding tickets. If we want to maximize social welfare (absent enforcement costs), which of the following statements are true? (Assume risk neutral drivers.) a) If the probability of detection with the extra police officer is 10%, then a speeding ticket should cost $55. b) If the probability of detection with the extra police officer is 10%, then a speeding ticket should cost $500. c) If the probability of detection with the extra police officer is 100%, then no one will speed. d) If the probability of detection with the extra police officer is 90%, then a speeding ticket should cost $59 e) None of the above
Continuous Probability Distributions
Probability distributions are of two types, which are continuous probability distributions and discrete probability distributions. A continuous probability distribution contains an infinite number of values. For example, if time is infinite: you could count from 0 to a trillion seconds, billion seconds, so on indefinitely. A discrete probability distribution consists of only a countable set of possible values.
Normal Distribution
Suppose we had to design a bathroom weighing scale, how would we decide what should be the range of the weighing machine? Would we take the highest recorded human weight in history and use that as the upper limit for our weighing scale? This may not be a great idea as the sensitivity of the scale would get reduced if the range is too large. At the same time, if we keep the upper limit too low, it may not be usable for a large percentage of the population!
Suppose that speeding imposes externalities on other people resulting in a social cost of $50. A town is considering hiring an extra police officer to give out speeding tickets. If we want to maximize social welfare (absent enforcement costs), which of the following statements are true? (Assume risk neutral drivers.)
a) If the probability of detection with the extra police officer is 10%, then a speeding ticket should cost $55.
b) If the probability of detection with the extra police officer is 10%, then a speeding ticket should cost $500.
c) If the probability of detection with the extra police officer is 100%, then no one will speed.
d) If the probability of detection with the extra police officer is 90%, then a speeding ticket should cost $59
e) None of the above
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