How many families will want to buy a steer and sell their steer in one year? Calculate the village income for your choice in part 1. To maximize total village income, how many steers should be purchased, raised, and sold in one year. Calculate the village income for your choice in this part. Explain why the total income of the community in part 2 is greater than the total income in part 1. (Hint: complete the tables. Respond to questions Justify your answers for full credit. Note that village income can be used to build new schools, houses, and roads. Maximizing community income is equivalent to maximizing total surplus.) Demand for Steers in one year Price Quantity Income to the community Next Year Number of steers Price per steer Total revenue from selling steers Income for the bondholders Total income for the community 0 $700 $0 $630 $630 1 $600 $600 2 $550 3 $500 $360 4 $400 5 $200 6 $100 $600 7 $50 $350 $0
- Markets and Common Resources. This problem is also called “the tragedy of the commons.”
There are seven families in the village. Each family has $70 to spend on either a steer or a bond. A steer today costs $70 per steer; a bond costs $70. In one year, a family can sell their steer that uses the common grazing land (the common resource) for the village.
The revenue and price received for selling a steer depend upon how many other families are selling their steers. See the demand for steers in the graph below. A family can buy one steer or buy one bond. Therefore, the number of steers is the number of families that decided to buy a steer.
If a family holds the $70 in cash, the family will earn nothing. Each family has $70. If a family buys a bond today for $70, they will receive $90 in one year.
A family can only earn income from raising & selling steers or from buying and holding bonds.
Hint: complete the table first.
- How many families will want to buy a steer and sell their steer in one year? Calculate the village income for your choice in part 1.
- To maximize total village income, how many steers should be purchased, raised, and sold in one year. Calculate the village income for your choice in this part. Explain why the total income of the community in part 2 is greater than the total income in part 1.
(Hint: complete the tables. Respond to questions Justify your answers for full credit. Note that village income can be used to build new schools, houses, and roads. Maximizing community income is equivalent to maximizing total surplus.)
Demand for Steers in one year
Price Quantity Income to the community Next Year
|
Number of steers |
Price per steer |
|
Total revenue from selling steers |
Income for the bondholders |
Total income for the community |
|
0 |
$700 |
|
$0 |
$630 |
$630 |
|
1 |
$600 |
|
$600 |
||
|
2 |
$550 |
|
|||
|
3 |
$500 |
|
$360 |
||
|
4 |
$400 |
|
|||
|
5 |
$200 |
|
|||
|
6 |
$100 |
|
$600 |
||
|
7 |
$50 |
|
$350 |
$0 |
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