Econ 450 Autumn 2015 HW 1 - Econ 450 Autumn 2015 HW 1 1 Assuming no government intervention or provision briey discuss why public education may be

Econ 450 Autumn 2015 HW 1 - Econ 450 Autumn 2015 HW 1 1...

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Econ 450 Autumn 2015 HW 1 1. Assuming no government intervention or provision, briefly discuss why public education may be underprovided if financed exclusively by private contributions. 5 points. 2. Define and explain theCoase Theorem, and relate it to the First WelfareTheorem. 5 points. 3. Define and explain what aPareto improvementis, using anEdgeworthBox. 5 points. 4. Consider the following market for a private good, where Anne and Beverly’s inverse demand curves are given by P A = 500 - Q P B = 500 - 2 Q The marginal cost of this good is MC = 2 Q (a) Calculate the market demand curve 2 points. (b) Depict this market graphically. 3 points. (c) Calculate the market price and quantity that will be produced, assuming this market is perfectly competitive. 3 points. (d) Argue that this outcome is Pareto Efficient. 2 points. (e) Suppose instead that this good is a pure public good. Costs and utilities are the same. What would the outcome of private pro- vision of this good be in that case? 5 points. (f) What would the efficient level of production be in that case? 5 points.
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