Macroeconomics: Principles, Problems, & Policies
20th Edition
ISBN: 9780077660772
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 5.A, Problem 1ARQ
To determine
Paradox of voting.
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An economist gives the following advice to a museum director: "You should introduce "peak pricing". At times
when the museum has few visitors, you should admit visitors for free. And at times when the museum has
many visitors, you should charge a higher admission fee."
a) When the museum is quiet, is it rival or non-rival in consumption? Is it excludable or non-excludable? What
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type of good-public or private - is the museum at those times? What would be the efficient price to charge
visitors, and why? (I.e., should the price = $0, or should it be >$0?)
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b) When the museum is busy, is it rival or non-rival in consumption? Is it excludable or non-excludable? What
type of good is the museum at those times? What would be the efficient price to charge visitors, and why?
A small town provides a fireworks display, which is a
public good, every fourth of July. For simplicity, assume the
town only has two residents: Hayden and Madison. Their
demands for the fireworks display are illustrated in the figure.
Determine the market demand curve for this public good.
The market demand curve should be downward sloping
In this example, the market will demand 2 fireworks at a price of
and the market will demand 14 fireworks at a price of
(Enter your responses rounded to two decimal places.)
CHILD
Price (dollars per firework)
8.00-
7.50
7.00-
6.50-
6.00-
5.50-
5.00-
4.50
4.00-
3.50-
3.00-
2.50-
2.00-
1.50
1.00-
0.50
0.00+
0
Madison
Hayden
2
4
6 8 10 12
Quantity (number of fireworks)
14
16
Power stations emit sulfur dioxide as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of power production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of sulfur dioxide). The following graph shows the daily demand for pollution rights.
1) Suppose the government has determined that the socially optimal quantity of sulfur dioxide emissions is 350 million tons per day.
One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. A tax (or price in this case) of $............per ton of sulfur dioxide emitted will achieve the desired level of pollution.
2) Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to…
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Macroeconomics: Principles, Problems, & Policies
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- Power stations emit sulfur dioxide as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of power production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of sulfur dioxide). The following graph shows the daily demand for pollution rights. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool (? Daily Demand for Pollution Rights 70 I Price (Dollars per ton) 63 7 56 Quantity Demanded 270 49 (Millions of tons) 42 35 28 21 Demand 14 7 90 120 150 180 210 240 270 300 QUANTITY (Millions of tons) 30 60 PRICE (Dollars per…arrow_forwardPower stations emit sulfur dioxide as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of power production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of sulfur dioxide). The following graph shows the daily demand for pollution rights. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool Daily Demand for Pollution Rights 81 IPrice (Dollars per ton) Quantity Demanded (Millions of tons) 72 63 315 Demand 35 70 106 140 175 210 245 0 215 190 QUANTITY (Mlons of tons Suppose the government has determined that the…arrow_forwardSuppose there are two residents in a neighborhood, and you know both of their demand curves for a public good. What would you have to do in order to figure out what the social demand curve? a-Subtract the demand of the person with the higher valuation of the public good from the demand of the person with the lower valuation of the public good b-Add their demand curves together c-Multiply the two demand curves together d-Subtract the demand of the person with the lower valuation of the public good from the demand of the person with the higher valuation of the public goodarrow_forward
- Deborah and Janet are considering contributing toward the creation of a building mural. Each can choose whether to contribute $200 to the building mural or to keep that $200 for a new sult. Since a bullding mural is a public good, both Deborah and Janet will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.80 of benefit. For example, if both Deborah and Janet choose to contribute, then a total of $400 would be contributed to the building mural. So, Deborah and Janet would each receive $320 of benefit from the building mural, and their combined benefit would be $640. This is shown in the upper left cell of the first table. Since a new suit is a private good, if Deborah chooses to spend $200 on a new suit, Deborah would get $200 of benefit from the new suit and Janet wouldn't recelve any benefit from Deborah's choice. If Deborah still spends $200 on a new suit and Janet chooses to contribute…arrow_forwardPower stations emit sulfur dioxide as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of power production. Suppose the government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of sulfur dioxide). The following graph shows the daily demand for pollution rights.arrow_forward2 of 3 The accompanying diagram shows the demand and supply curves for taxi rides in New York City. Uber's entry into the market reduces the quantity of rides demanded from taxis at every price. On the accompanying graph, shift the demand curve to accurately represent the change in demand. Then, move point E₁ to the new equilibrium point. The unlabeled point is to help you answer the next question and is not movable. Assume that New York City politicians respond by imposing a regulated price of $2.50 per mile. Calculate consumer surplus, producer surplus, and total surplus for the taxi market after Uber has entered the market. Consumer surplus: $ 750 Producer surplus: $ 600 Total surplus: $ 1350 million million million Price ($ per mile) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0 2.50 1.30 Market for Taxi Rides in NYC D 240.00 S 600.00 120 240 360 480 600 720 840 960 1,080 1,200 Quantity of taxi rides (millions of miles)arrow_forward
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