Chapter 4, Markets, Externalities, and Public Goods Video Solutions, Environmental economics : an introduction

Problem 1

Suppose that the following discrete numbers show the integer values of MWTP and MC as depicted in Figure 4.1. Determine the socially efficient rate of output. Show that at any other output level, the net benefits to society will be lower than they are at the efficient level. (Remember, the marginal cost of increasing output from 4 to 5 units is $$\$ 9$$, which is also the amount by which cost decreases in going from 5 to 4 units.)
$$
\begin{array}{lrrrrrrrrrr}
\hline \text { Output } & 1 & 2 & 3 & 4 & 5 & 6 & 7 & 8 & 9 & 10 \\
\text { MWTP } & 20 & 18 & 16 & 14 & 12 & 10 & 8 & 6 & 4 & 2 \\
\text { MC } & 5 & 6 & 7 & 8 & 9 & 11 & 15 & 21 & 30 & 40 \\
\hline
\end{array}
$$

Julie Silva

Numerade Educator

01:20

Problem 2

Go back to question 2 in Chapter 3. Suppose the marginal cost of producing this item is constant at $$\$ 5$$ per item. What is the socially efficient rate of output?

Yaw Asomani

Numerade Educator

06:08

Problem 3

Following are portions of the demand curves of three individuals for the water quality in a small pond. The water quality is expressed in terms of the parts per million (ppm) of dissolved oxygen (DO). Water quality improves at higher DO levels. The demand curves show the marginal willingness to pay of each individual (A, B, C).
a. Complete the table. Find the aggregate marginal willingness-to-pay curve of these three people at each DO level.
b. If the actual marginal cost of increasing DO is $$\$ 12$$, what is the socially efficient level of DO in the lake, assuming these three people are the only ones involved?
(TABLE CAN'T COPY)

Jin-Hwan Ro

Numerade Educator

01:42

Problem 4

Considering the definition of public goods introduced in the chapter, is a bus a public good? Is an automatic teller machine (ATM)? Is a public park? Is a library?

Alejandro Ruiz

Numerade Educator

01:44

Problem 5

Consider the example of the three homeowners around the lake (the ones depicted in Table 4.2). Suppose the lake was cleaned up to the efficient level of 2 ppm and that the total costs of the cleanup were shared equally among the homeowners (stick to integer values here). Will all three homeowners be better off? What problems does this bring up about sharing the costs of public goods?

Jonathan Tapiwa

Numerade Educator