The tragedy of the commons gives rise to a negative externality. When people mov
ID: 1163659 • Letter: T
Question
The tragedy of the commons
gives rise to a negative externality.
When people move to an area of the world that was previously unpopulated, we expect more consumers and more producers to spring up in that area. What would we expect to happen to the price and quantity in the markets where this happens?
The equilibrium price will go up and equilibrium quantity will be indeterminate.
When Noelle received a promotion at work, her income rose by 50 percent. The income elasticity of demand for steak was found to be 1.5. For her, steak is a(n)
leads to underutilized resources.Explanation / Answer
1) The tragedy of commons leads to : occurs when public goods are provided.
Tragedy of commons refers to over exploitation of any shared unregulated common resource such as grasslands , ocean etc . When public goods are provided such as a tubewell in a village . People exploit it fully but nobody bothers to maintain it .
2) The equilibrium price will be indeterminate and equilibrium quantity will go up.
More consumers and more producers means that both supply and demand curve shift rightwards . The quantity rises . but the effect on price is ambiguous .
3) luxury
When income elasticity is greater than 1 ( here it is 1.5 ) then the good is a luxury . It tells us that change in quantity demanded for steak is greater than change in income . Hence it is a luxury good .
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