tity of the publić by someone else, the generator of the an intimate connection, and in fact some redundancy, between the concepts of public 11. It is costly to supply one more unit of a public good, but it is costless to provide the producer should receive a positive price (for a good) but the consumer should pay a bad and externality. on marginal cost pricing, the public good to an additional consumer. Thus, relying price of zero. As a consequence, budgets do not balance. A similar thing occurs with fo brobg n boc public bads. bo pezcq ou qen ho 1. Consider an air basin with only two consumers, Huck and Matilda. Suppose Huck's demand for air quality is given by a- 1-p where p is Huck's marginal willingness to pay for air quality. Similarly, Matilda's demand is given by qM 2 -2p. Air quality can be supplied according to q p where p is the marginal cost of supply. Graph the aggregate demand for air quality along with individual demands What is the efficient amount of air quality? а. plu b. 2.)Consider an airport that produces noise that decays as the distance (d), in kilometers, from the airport increases: N(d) 1/d2. Fritz works at the airport. Fritz's damage from noise is $1 per unit of noise and is associated with where Fritz lives. His costs of commuting are $1 per kilometer (each way). The closest he can live to the airport is d 0.1 km. mS Write an expression for Fritz's total costs (noise and transportation). b. What is the distance Fritz will live from the airport in the absence of compensa- tion for the noise? What are his total costs? а. bous eb u Dc. ads Suppose Fritz is compensated for his damage, wherever he may live. How close to the airport will he choose to live? How much will he be compensated? (Hint: Solve graphically or using calculus.) 3. When sulfur dioxide is emitted into the air it is transported over long distances and is converted to sulfuric acid. This gradually falls to the ground, either as rain or snow or simply by settling out of the air. This is called acid deposition. In what way could acid deposition be consider a rival bad? [Hint: See the paper by Freeman, 1984.] 4. Why is lump sum compensation for an externality nondistortionary? lo