c) Suppose that the demand for good Q is by 2 groups and given by: Q1=45-0.2P1 Q2=15-0.2P2 =2Q² And that the cost function for the same good is given as; Cost = Find the equilibrium levels of price and quantity when the good is private good and when the good is a public good i) Present the answer above in well labeled graphs Show by way of calculation the free riding ii) iii)

c) Suppose that the demand for good Q is by 2 groups and given by: Q1=45-0.2P1 Q2=15-0.2P2 =2Q² And that the cost function for the same good is given as; Cost = Find the equilibrium levels of price and quantity when the good is private good and when the good is a public good i) Present the answer above in well labeled graphs Show by way of calculation the free riding ii) iii)

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter11: Public Goods And Common Resources

Section: Chapter Questions

Problem 2PA

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8: Consider the market for alcohol. The demand for alcohol is given by the inverse demand function p = 1500 – 10Q The market cost function for firms that sell alcohol is C"(Q) = 300Q + 10Q² Alcohol consumption sometimes produces negative externalities, such as drunk driv- ing, health costs, or violent behavior. The social cost of these externalities is C°(Q) = 5Q? %3D Note that both CP(Q) and C9(Q) are cost functions, not marginal cost functions. (3) How much deadweight loss is there at the competitive equilibrium? Draw a graph to support your answer. (4) Now suppose there is a monopolist that sells alcohol. How much is produced by the monopolist? Is an unregulated competitive market or an unregulated monopolist better (in terms of social welfare) in this case?
This question asks you to find the socially optimal outcome. Suppose a social planner takes the demand function and cost functions as given, and can choose (i) the market price, (ii) the number of firms, and (iii) the quantity produced by each firm [the planner is free to choose any quantity, even if the firms would lose money]. The social planner’sgoal is to maximize the sum of consumer surplus and firms’ profits. To do this, the planner will take into account the two economic principles of efficiency, (i) Allocative efficiency which implies price=mc. (2) Efficiency in production, which means that the cost of production of the total market quantity should be minimized. Suppose the demand function is Q(p) = 40 – 5p. For each of the following cost functions, what market price, number of firms and quantity for each firm will the social planner choose?a) C(q) = 20 + 4qb) C(q) = 3 + q^2/3 + 3q.
This question asks you to find the socially optimal outcome. Suppose a social planner takes the demand function and cost functions as given, and can choose (i) the market price, (ii) the number of firms, and (iii) the quantity produced by each firm [the planner is free to choose any quantity, even if the firms would lose money]. The social planner’sgoal is to maximize the sum of consumer surplus and firms’ profits. To do this, the planner will take into account the two economic principles of efficiency we discussed in class, (i) Allocative efficiency which implies price=mc. (2) Efficiency in production, which means that the cost of production of the total market quantity should be minimized. Suppose the demand function is Q(p) = 40 – 5p. For each of the followingcost functions, what market price, number of firms and quantity for each firm will the social planner choose?a)C(q) = 20 + 4qb) C(q) = 3 + q^2/3 + 3q.
8: Consider the market for alcohol. The demand for alcohol is given by the inverse demand function p = 1500 – 10Q The market cost function for firms that sell alcohol is CP(Q) = 300Q + 10Q? Alcohol consumption sometimes produces negative externalities, such as drunk driv- ing, health costs, or violent behavior. The social cost of these externalities is C°(Q) = 5Q? Note that both CP(Q) and C9(Q) are cost functions, not marginal cost functions. (1) How much is produced by the firms in the competitive equilibrium? (2) What is the socially best level of production?
8: Consider the market for alcohol. The demand for alcohol is given by the inverse demand function p = 1500 – 10Q The market cost function for firms that sell alcohol is CP (Q) = 300Q + 10Q² Alcohol consumption sometimes produces negative externalities, such as drunk driv- ing, health costs, or violent behavior. The social cost of these externalities is C"(Q) = 5Q? Note that both Cº(Q) and C9(Q) are cost functions, not marginal cost functions. (1) How much is produced by the firms in the competitive equilibrium? (2) What is the socially best level of production? (3) How much deadweight loss is there at the competitive equilibrium? Draw a graph to support your answer. (4) Now suppose there is a monopolist that sells alcohol. How much is produced by the monopolist? Is an unregulated competitive market or an unregulated monopolist better (in terms of social welfare) in this case?
Draw a graph that models a positive externality in consumption (label and clearly explain graph) Explain: i) The difference between the competitive equilibrium quantity and the socially optimal level quantity. ii) A possible intervention to bring the competitive equilibrium quantity closer to the socially optimal quantity. iii) An example of a setting in which this type of externality might occur (explain clearly how/why this externality happens).
11-) Andrew, Beth, and Cathy live in Lindhville. Andrew’s demand for bike paths, a public good, is given by Q = 12–2P. Beth’s demand is Q = 18–P, and Cathy’s is Q = 8–P/3. The marginal cost of building a bike path is MC = 21. The town government decides to use the following procedure for deciding how many paths to build. It asks each resident how many paths they want, and it builds the largest number asked for by any resident. To pay for these paths, it then taxes Andrew, Beth, and Cathy the prices a, b, and c per path, respectively, where a + b + c = MC. (The residents know these tax rates before stating how many paths they want.)A-). If the taxes are set so that each resident shares the cost evenly (a = b = c), how many paths will get built?B) Show that the government can achieve the social optimum by setting the correct tax prices a, b, and c. What prices should it set?
5. Public Goods Consider 2 individuals, Arrow and Becker, who have the following demand curves respectively for parks respectively, and face a marginal cost curve below. QA =4- PA; QB =4-2PB; MCq=1. Here P is the price of a park, Q is the quantity, and A represents Arrow and B represents Becker. The price for other goods is 1. a) First, consider the scenario that the parks are private goods, similar to private gardens. How many parks will Arrow and Becker choose? What is the price of the parks in the market? b) Now suppose the parks are public goods, write down the Samuelson condition. What is the social efficient provision of the public good? Suppose Arrow chooses the amount of the parks to provide, but he cannot exclude Becker from enjoying the parks he provides. How many parks will he choose? Compare your result with part b), what is the implication here? d) We still ask Arrow to determine the number of parks. Suppose the government has provided 1 unit of parks for the public. That…
Public Goods. Suppose a neighborhood in Segovia’s central business area is deciding how many fountains they want to see in the main avenue. There is a first group of 20 neighbors and each has a demand Q = 20 − P for fountains. There is a second group of 5 people, and each has a demand Q = 20 − 2P for fountains. The cost of building each fountain is 225. How many fountains are socially optimal? Fountains are public goods. Hint: To obtain the SMB, please first transform the demand functions into “public goods’ valuations” (“isolate P”) and then multiply them by the amount of neighbors per group. Then you can proceed with the vertical summation.
Suppose the demand for standard sized bottled water in the US is Qd=120-30.5P where Qd is monthly quantity demanded in millions and P is the price per bottle in dollars and cents. If the marginal private cost (MPC) of producing the bottled water is one dollar, calculate the market equilibrium quantity. Explain what a constant marginal cost implies. Does that mean the total opportunity cost of producing bottled water is unrelated to how many are produced? Let’s assume that the marginal private benefit (MPB) of bottled water equals the marginal social benefit (MSB). Explain what that means. At the equilibrium calculated in part A, what do you know about buyers’ willingness to pay in each transaction?
Use the following diagram in which S is the market supply curve and S, is a supply curve comprising all costs of production, including external costs, to answer the question below. Price Quantity Assume that the number of people affected by these external costs is large. Without government interference, this market will reach a(n) A) higher price than is consistent with an optimal allocation of resources. B) optimal allocation of society's resources. C) overallocation of resources to this product. OD) underallocation of resources to this product.
2. Given the demand function of motorcycle: Q = 500 – 100P where Q is total quantity demanded (unit: 10,000) and P is daily price (in unit of US$). (1) If the current daily price is US$1.0, please find the total quantity demanded. (2) If the external costs of motorcycle ($2) are all internalized, what would be the total quantity demanded? (3) Please also discuss impacts of this internalization policy on supply, demand and public infrastructures.