2. Suppose we are considering fire hydrants in a small neighborhood. For simplicity, assume that only two individuals live in this neighborhood; Bob and Nancy. Once the fire hydrants are supplied by the city, they are automatically available to both Bob and Nancy. Thus, we can view the fire hydrants as public goods. The table below summarizes Bob and Nancy's individual marginal willingness to pay for fire hydrants. Number of Fire Hydrants 1 2 3 4 5 Bob's MWTP $480 400 320 240 160 Nancy' MWTP $80 60 40 20 0 Suppose that one fire hydrant is provided in the neighborhood. Bob and Nancy are both being charged a municipal tax of $300 each to pay for the hydrant. Would Bob or Nancy (or both) be considered a 'free rider'? Explain your answer.

Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods:   Available Methods to Reduce Pollution 1. The government sets pollution standards using regulation. 2. The government allocates tradable pollution permits.   Each firm faces different costs, so reducing pollution is more difficult for some firms than others. The following table shows the cost each firm faces to eliminate each unit of pollution. For each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive. Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) (Dollars) Firm X 90 125 180…

Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods:   Available Methods to Reduce Pollution 1. The government sets pollution standards using regulation. 2. The government allocates tradable pollution permits.   Each firm faces different costs, so reducing pollution is more difficult for some firms than others. The following table shows the cost each firm faces to eliminate each unit of pollution. For each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive. Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) (Dollars) Firm X 130 165 220…

Benny and Danny live next to each other in a student resident building on campus. Benny is a metal-head (likes loud heavy metal music) and Danny is a bookworm (likes a quiet environment to study). From rocking out to heavy metal, Benny gets a benefit of $100. When Benny’s music is playing Danny suffers a cost of $175. Suppose Benny is given the right to listen to his music. [9] According to the Coase Theorem, describe the transaction, if any, that will be made between Benny and Danny.