SQ3_ExternalitiesAK(1)

In addition the total value of this investment at the

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Unformatted text preview: r villager in the future. Assuming the villagers can both borrow and lend at a 15 percent annual interest rate, how much will the right to graze llamas on the commons sell for at auction. How will the new owner use the right, and what will be the resulting village income? a. See the table below: 3 villagers will send llamas out into the commons and 3 villagers will buy the government bond. Total village income will be 3*\$16+3*15=\$93 b. See the table below: the socially optimal number of llamas is 1. This is less than the actual number from part a because in part a, the villagers did not take into consideration the fact that when they send a llama out to graze on the commons it negatively impacts the sales price of all th...
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