1. A clever economics student writes up a wonderful set of notes that can help e
ID: 1204793 • Letter: 1
Question
1. A clever economics student writes up a wonderful set of notes that can help everyone studying economics to earn a higher grade. The student posts these notes on a website. Are these notes a public good? Using the two key traits of a public good, explain your answer.
2. In the city of Crimetown, many businesses and neighborhoods are hiring private firms to install locks and gates and to provide security guards. However, during the last city election, a majority of people in the city voted against expanding the city’s police force. Use the concept of the free rider problem to explain why the same people might hire security guards for their own homes and businesses but vote against expanding the city police force.
3. Suppose that on the border of Oregon and California there is a large area of undeveloped land that has been proposed as a protected natural reserve. If California protects its share of the land, it will cost California 700 and generate social benefits of 900—however, California will receive only 600 of those social benefits while next-door Oregon receives the other 300. Conversely, if Oregon protects its share of the land, it will cost Oregon 500 and generate social benefits of 600—however, Oregon will receive only 400 of those social benefits while California receives the other 200. If a state does not protect its land, it experiences costs of 0. Draw up a payoff matrix to illustrate this prisoner’s dilemma situation, and explain what self-interested choice each state is likely to make if they cannot coordinate their behavior.
4. The Taylor Teletransporter is new technology that will transport people instantaneously between any two places on earth. This invention will provide considerable spillover benefits to society. The table below shows the demand for the transporters, the supply of transporters if Taylor receives only the private benefits, and the supply of transporters if Taylor also receives the full social benefits. Identify the equilibrium quantity and price if Taylor Transporters were sold based only on private benefits. Identify the equilibrium price if the brilliant inventor Taylor was to receive the social benefits too.
Price
Quantity Demanded
Quantity Supplied If Taylor Receives Only Private Benefits
Quantity Supplied If Taylor Also Receives Social Benefits
300
0
60
75
250
5
50
65
200
10
40
55
150
15
30
45
100
20
20
35
50
25
10
25
Price
Quantity Demanded
Quantity Supplied If Taylor Receives Only Private Benefits
Quantity Supplied If Taylor Also Receives Social Benefits
300
0
60
75
250
5
50
65
200
10
40
55
150
15
30
45
100
20
20
35
50
25
10
25
Explanation / Answer
Multiple questions asked.
First question is answered below.
1.
Yes, the notes are public good.
The 2 basic properties of public goods are: Non-rival and non-excludable.
Since the notes are posted online and they can be read by anyone and everyone, they are not excludable, since everyone online has access to it without any charge, This makes it non-excludable in nature.
Secondly, the notes can be everyone and everyone can gain knowledge from them, and knowledge of one will not affect the learning ability or knowledge derived from the notes by another student. This makes them non-rival in nature.
Hence, the notes becomes a public good.
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