Unformatted text preview: ECON2350 - V. BARDIS
AN E T P A TI E ET 1. See notes.
2. See notes. 3. a. Each person will plant the amount such that his MWTP or Marginal Beneﬁt (MB) is equal to the
price. Therefore, the ‘market outcome’ is 11—qa=1 :> qam=10
G—QbZl => gbm=5 b. In the market outcome, each person disregards the beneﬁt his plants have on the other. Therefore
we expect that each buys less that the ‘socially optimal’ amount and so the total number of plants
will be less than the efﬁcient one. Note that the plants in A’s garden are ‘consumed’ by both A and
B so they are a ‘public good’. The same is true for the plants in B’s garden. 0. Let M S B A be society’s marginal beneﬁt (or MTWP) for plants in A’s garden. It follows from the
above that M SB A is equal to the sum of the individual MB’s. From the table: MSBA = (11 —qa)+ (1) = 12—6111 Likewise, letting M SB 3 be society’s marginal beneﬁt (or MTWP) for plants in B’s garden, we get MSBB=(1)+(6—Qb)=7—Qb Society’s welfare is maximized when M S B A = p and M SB B = p. Therefore, we get 12—qa21 :> (1*:11 —a¥ 7—Qb=1 => (13:6 As expected each person actually plants less than the efﬁcient amount. 4. MWTP(1) = (1000) + (1300) = 2300 > 1500, MTWP(2) = (1800 — 1000) + (x1300) = 800 —1300
+ x 2 X500 < 2000 so x < 2500 Q*=1, for X > 2500 Q*=2. 5. See notes. ...
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