SQ3_ExternalitiesAK(1)

A if each villager decides individually how to invest

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Unformatted text preview: e efficient outcome since the tax would imply that marginal cost of production to sellers would be equal to the social marginal cost curve. 5. A village has 6 residents, each of whom has an accumulated savings of $100. Each villager can use this money either to buy a government bond that pays 15 percent interest per year or buy a 1 ­year ­old llama, send it onto the commons to graze, and sell it after a year. The price the villager gets for the 2 ­year ­llama depends on the quality of the fleece it grows while grazing on the commons, which in turn, depends on the number of llamas sent into the commons, as shown in the following table: Number of Price Per Llamas on the 2 ­Year Commons 1 2 3 4 5 6 Old Llama 122 118 116 114 112...
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This note was uploaded on 02/13/2014 for the course ECON 2 taught by Professor Kim during the Winter '08 term at UCSD.

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