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Unformatted text preview: TUTORIAL 11 WEEK 12 COMMON RESOURCES AND PROPERTY RIGHTS PUBLIC GOODS AND THEIR FINANCING Reading Text: Ch 12 (pp334 to end of chapter) Ch 13 Ch 12 Review Questions: 7 7 Spending on Christmas presents can become a positional arms race and result in wasteful spending patterns. Families sometimes devise rules and adopt norms which prevent such races occurring. Agreeing to limit spending is one such rule. Problems: 8 8 The following table shows the total village income from grazing llamas, together with the marginal village income from the activity. Number of llamas on the commons Price per 2- year-old llama ($) Income per llama ($/year) Total village income ($/year) Marginal income ($/year) 22 1 122 22 22 14 2 118 18 36 12 3 116 16 48 8 4 114 14 56 4 5 112 12 60 –6 6 109 9 54 a Three llamas will be sent onto the commons. The resulting net village income will be $48 from the llamas plus $45 from government bonds, or $93. b The socially optimal number is only one llama. Villagers send three instead, because in deciding whether or not to send a llama, each villager ignores the impact of his or her llama’s presence on the other llamas’ fleece quality. The total village income at the socially optimal number of one llama is $22 from the llama and $75 from government bonds, or $97. c If a single villager could control access to the commons, she would send only a single llama, which she could sell after one year for $22 more than she paid for it. If the land were free, the owner would thus earn $22 per year by raising one llama per year on it, or $7 more than she would have earned had she used her $100 to buy a bond. The price of the land will be bid up until owning the land is no better buy a bond....
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This note was uploaded on 03/19/2012 for the course ECON 1101 taught by Professor Julia during the Three '08 term at University of New South Wales.
- Three '08