Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 10, Problem 2.2P
To determine

Tradeoffs and work.

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Suppose five people have houses on the same small lane. They all individually benefit from regular maintenance of the lane. Their individual marginal benefit curves are P = 8 ― (1/10)Q, where P reflects a willingness to pay in thousands and Q is the length of the road repaired in ten-yard units. The cost of maintenance is $2,000 per ten yards. Suppose one person is currently the only one paying for maintenance. How much does this person buy, and what is the deadweight loss? Does anyone individually have an incentive to pay for additional maintenance, and why or why not?
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You are an intern to the editor of a small-town newspaper in Mallsburg, Pennsylvania. Your boss, the editor, asks you to write the first draft of an editorial for this week’s paper. Your assignment is to describe the costs and the benefits of building a new bridge across the railroad tracks in the center of town. Currently, most people who live in this town must drive 2 miles through thickly congested traffic to the existing bridge to get to the main shopping and employment center. The bridge will cost the citizens of Mallsburg $25 million, which will be paid for with a tax on their incomes over the next 20 years. What are the opportunity costs of building this bridge? What are the benefits that citizens will likely receive if the bridge is built? What other factors might you consider in writing this editorial?
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