101_PS16_ans_03 - Answers to Problem Set 16 Answers to...

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Answers to Problem Set 16 Answers to Review Questions 1a. Nonrival: street lighting on campus and NPR radio broadcasts. Stephen King novels are nonrival except for the fact that it is difficult for more than one consumer to read a given copy at once. An apple is clearly unavailable to one consumer if another eats it. b. Nonexcludable: street lighting on campus and NPR radio programming. 2a. Rival and nonexcludable: fish in the ocean, Interstate-5 in L.A. during rush hour. b. Nonrival and excludable: software downloaded from a website (at least for hours during which the site’s server is not operating at full capacity); music in concert halls (until seats run out). c. Nonrival and nonexcludable: Fall colors in New England, full moon rising over Lake Superior, Interstate 10 connecting Tucson and Phoenix (a fairly deserted highway) 3. A head tax limits the amount of revenue that can be raised to the amount that poor taxpayers can afford to pay. A wealthy taxpayer might prefer a proportional tax because the value of the additional public goods made possible by the additional revenue would outweigh the burden of the additional tax. 4. Activities that generate negative externalities are pursued excessively in the absence of taxes on them, so a tax would improve resource allocation by making these activities less attractive. The tax would also raise revenue to pay for public goods. So true. 5. The direct loss in surplus is an overstatement because we must also consider the gain in surplus that results from the public goods and services that are financed by the tax. Answers to Problems 1a. The most the guard can charge is $150, to be hired by Jill. b. The plan will not be approved because Jack will not vote for it. He would have to pay a $60 tax for a service worth only $50 to him. 2a. A 1 percent tax would imply that Jack pays $10 per month and Jill pays $110.
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This note was uploaded on 03/27/2008 for the course ECON 1110 taught by Professor Wissink during the Spring '06 term at Cornell University (Engineering School).

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101_PS16_ans_03 - Answers to Problem Set 16 Answers to...

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