Principles_HWsolution_ch10 - Suggested Answers for Mankiw,...

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1 Suggested Answers for Mankiw, Chapter 10, Problem 4, 5, 6, 8, 12 4. a. The externality is noise pollution. Ringo’s consumption of rock and roll music affects Luciano, but Ringo does not consider that in deciding how loud he plays his music. b. The landlord could impose a rule that music could not be played above a certain decibel level. This could be inefficient because there would be no harm done by Ringo playing his music loud if Luciano is not home. c. Ringo and Luciano could negotiate an agreement that might, for example, allow Ringo to play his music loud at certain times of the day. They might not be able to reach an agreement if the transaction costs are high or if bargaining fails because each holds out for a better deal. 5. If the Swiss government subsidizes cattle farming, it must be because there are externalities associated with it. Because tourists come to Switzerland to see the beautiful countryside, encouraging farms, as opposed to industrial development, is important to maintaining the tourist industry. Thus, farms produce a positive
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This note was uploaded on 04/23/2010 for the course ECONOMICS 2312 taught by Professor William during the Spring '09 term at 東京大学.

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Principles_HWsolution_ch10 - Suggested Answers for Mankiw,...

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