EOC 10 Solutions - modern principles of economics 10 modern...

This preview shows page 1 - 3 out of 12 pages.

S-1 MODERN PRINCIPLES : MICROECONOMICS 10 10 MODERN PRINCIPLES OF ECONOMICS Facts and Tools 1. Let’s sort the following eight items into private costs, external costs, private benefits, or external benefits. There’s only one correct answer for each of questions a–h. a. The price you pay for an iTunes download b. The benefit your neighbor receives from hearing you play your pleasant music c. The annoyance of your neighbor because she doesn’t like your achingly conventional music d. The pleasure you receive from listening to your iTunes download e. The price you pay for a security system for your home f. The safety you enjoy as a result of having the security system g. The crime that is more likely to occur to your neighbor once a criminal sees a “Protected by alarm” sticker on your window h. The extra safety your neighbor might experience because criminals tend to stay away from neighborhoods that have a lot of burglar alarms 1. Private cost = PC; External cost = EC; Private benefit = PB; External benefit = EB a. PC; b. EB; c. EC; d. PB; e. PC; f. PB; g. EC; h. EB 2. If the students at your school started saying “thank you” to friends who got flu shots, would this tend to reduce the undersupply of people who get flu shots? Why or why not? 2. People sometimes do things to get approval from their friends, so people might be more likely to get flu shots if they knew they’d get a thank you from someone they cared about. And it’s reasonable to thank people who get flu shots: They’re reducing the chance you’ll get sick this winter! Alex has suggested (on Marginal Revolution) three possible buttons to give people who get a flu shot: Kiss me, I’m vaccinated. Take one for the herd! Get a flu shot. The life you save may not be your own. 3. a. Consider a factory, located in the middle of nowhere, producing a nasty smell. As long as no one is around to experience the unpleasant odor, are any externalities produced? Solution Solution Externalities: When the Price Is Not Right Cowen3e_CH10_Solutions.indd 1 29/06/15 12:51 PM
Image of page 1

Subscribe to view the full document.

S-2     CHAPTER  10    Externalities: When the Price Is Not Right b. Suppose that a family moves in next door to the smelly factory. Do we now have an externalities problem? If so, who is causing it: the factory by producing the smell, the family by moving in next door, or both? c. Suppose that the family clearly possesses the right to a pleasant-smelling environment. Does this mean that the factory will be required to stop producing the bad smell? What could happen instead? There are many right answers. ( Hint : Think about the Coase theorem. Actually, it’s always a good idea to think about the Coase theorem, whether the topic is smelly factories, labor–management disputes, international peace negotiations, or divorce settlements.) 3. a. No.
Image of page 2
Image of page 3

{[ snackBarMessage ]}

Get FREE access by uploading your study materials

Upload your study materials now and get free access to over 25 million documents.

Upload now for FREE access Or pay now for instant access
Christopher Reinemann
"Before using Course Hero my grade was at 78%. By the end of the semester my grade was at 90%. I could not have done it without all the class material I found."
— Christopher R., University of Rhode Island '15, Course Hero Intern

Ask a question for free

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern