101_PS15_ans_03 - Answers to Problem Set 15 Answers to...

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Unformatted text preview: Answers to Problem Set 15 Answers to Review Questions 1. In the absence of regulation, the equilibrium rate of vaccination would be suboptimally low, because individual decision makers would tend to ignore the fact that their becoming infected would impose additional risks to others. 2. Efficient cleanup requires that the marginal cost of pollution reduction be the same for every polluter, for otherwise it would be possible to reduce cost by having polluters with high marginal costs remove less and those with low marginal costs remove more. Both pollution taxes and sale of effluent permits result in marginal costs of pollution reductions that are the same for all polluters. Across-the-board-cutbacks, in contrast, result in marginal costs of pollution reduction that are higher for some firms than others. 3. Efficient resource use requires that the buyer pay a price equal to the marginal cost of the resource. Because first-dollar coverage causes users to see a price of zero, it leads them to use the resource too intensively. 4. The optimal number of bank robberies is that number for which the marginal cost of curbing robberies is equal to the marginal benefit. Society has no interest in spending far more to prevent a robbery than the loss the robbery would impose on society if it occurred. 5. Because commercial jets carry many more passengers than small private planes, the benefit of preventing a commercial jet from crashing is far greater than the benefit of preventing a private plane from crashing. So the optimal amount of safety equipment is greater for the commercial jet....
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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_PS15_ans_03 - Answers to Problem Set 15 Answers to...

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