Krugman's Economics For The Ap® Course
Krugman's Economics For The Ap® Course
3rd Edition
ISBN: 9781319113278
Author: David Anderson, Margaret Ray
Publisher: Worth Publishers
Question
Book Icon
Chapter 74, Problem 2CYU
To determine

Whether Y's economic reasoning correct when she failed to return the library book on time which imposes a negative externality on other students and she claimed that the library should

charge a huge fine rather than charging a modest fine for late returns, so that borrowers will never return a book late.

Expert Solution & Answer
Check Mark

Explanation of Solution

No, Y’s economic reasoning is not correct because it is socially optimal if students occasionally fail to return the book on time and by allowing some to be late then there would be a marginal social cost on others every day if Y is late to return the book, but there is also some positive marginal social benefit to Y. Therefore, Y's economic reasoning is incorrect. She may have more time to use the book for research, education, or enjoyment if she returned it late. The social benefit of Y is therefore equal to the number of days (social cost) that a book is returned after its due date, and in this case, the marginal social benefit is equal to the marginal social cost.

Furthermore, in this situation, allowing the overdue patron to return the book another day would increase the total social benefit more than the total social cost. As a result, it would be appropriate to charge a reasonable fine that aids the library in reducing the number of days that the book can be returned late in accordance with the socially optimal number of days.

Economics Concept Introduction

Introduction: When a decision is made by comparing the costs and benefits of any situation, it is called economic reasoning.

Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education