Principles of Microeconomics
7th Edition
ISBN: 9781305156050
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 10, Problem 6QR
To determine
Application of coase theorem.
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Anne has just purchased a new house in a lovely neighborhood. Her neighbors are friendly and even brought her house-warming gifts. Anne, however, has a problem. Her neighbors have cats, and Anne hates cats. Even though the city has a law requiring all outdoor pets to be on a leash, her neighbors ignore it, and the cats roam all over Anne's property.
How would an economist describe this situation? Is there anything Anne can do? Can you think of a Coase- like private solution?
Mike, Rosie, and Shobber live in separate houses along a dark and windy road. The following represent their marginal benefits for street lights:
MBMike=200-2QM
MBRosie=100-QR
MBShobber=100-2QS
where QM represents the quantity of street lights consumed by Mike, QR is the quantity of street lights consumed by Rosie and QS is the quantity of street lights consumed by Shobber. The Mayor of their town considers street lights to be a public good and is charged with purchasing the optimal number of street lights from Boone’s Light Shop. Boone’s is willing to sell street lights for $150 per light.
b. What quantity of street lights should the Mayor purchase? Why? Suppose the Mayor is able to implement a pricing scheme to charge users for the illumination services.
c. How much should each individual be charged? Does the tax revenue cover the total cost of providing the optimal number of streetlights?
15. Suppose a gated housing community includes 150 identical households. It is costly
to maintain the roads in the gated community. Suppose each household has a
marginal benefit MB = 200 – 25M for each mile of road maintained. The total
cost of maintaining roads is given by C = 20000M (MC=20000).
i. If the residents have to pay individually to maintain the roads in the vicinity
of their property, how many miles of roads will each household choose to
maintain on their own?
j. How many miles of roads should be maintained for the community
considering the public good nature of roads?
k. Suppose the community association could charge a flat fee to the
households to fund the maintenance of the roads. How much should this fee
be per household and what is the total cost of maintaining the socially
efficient level of this public good?
1. Draw the individual marginal benefit curves, overall marginal benefit and
the marginal cost curve. Identify and calculate the net social benefit of the
public…
Chapter 10 Solutions
Principles of Microeconomics
Ch. 10.1 - Prob. 1QQCh. 10.2 - Prob. 2QQCh. 10.3 - Prob. 3QQCh. 10 - Prob. 1CQQCh. 10 - Prob. 2CQQCh. 10 - Prob. 3CQQCh. 10 - Prob. 4CQQCh. 10 - Prob. 5CQQCh. 10 - Prob. 6CQQCh. 10 - Prob. 1QR
Ch. 10 - Prob. 2QRCh. 10 - Prob. 3QRCh. 10 - Prob. 4QRCh. 10 - Prob. 5QRCh. 10 - Prob. 6QRCh. 10 - Prob. 1PACh. 10 - Prob. 2PACh. 10 - Prob. 3PACh. 10 - Greater consumption of alcohol leads to more motor...Ch. 10 - Prob. 5PACh. 10 - The many identical residents of Whoville love...Ch. 10 - Prob. 7PACh. 10 - Prob. 8PACh. 10 - Prob. 9PACh. 10 - Prob. 10PA
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