Public Goods and Publicly Provided Private Goods - Economics Assignment Help

Assignment Task

1. Indicate whether each of the following statements is true or false, and justify your answer.

(a) Efficient provision of a public good occurs at the level at which each member of society places the same value on the last unit.

(b) If a good is nonrival and excludable, it will never be produced by the private sector.
 

2. Suppose that there are only two fishermen, Zach and Jacob, who fish along a certain coast. They would each benefit if lighthouses were build along the coast where they fish. The marginal cost of building each additional lighthouse is $100. The marginal benefit to Zach of lighthouses is 90-Q, and the marginal benefit to Jacob is 40–Q, where Q equals the number of lighthouses.

(a) Explain why we might not expect to find the efficient number of lighthouses along this coast.

(b) What is the efficient number of lighthouses? What would be the net benefit to Zach and Jacob if the efficient number were provided?
 

3. Andrew, Beth, and Cathy live in Lindhville. Andrew’s demand for bike paths, a public good, is given by Q=12-2P. Beth’s demand is Q=18-P, and Cathy’s demand is Q=8– P/3. The marginal cost of building a bike path is MC=21. The town government decides to use the following procedure for deciding how many paths to build. It asks each resident how many paths they want, and it builds the largest number asked for by any resident. To pay for these paths, it then taxes Andrew, Beth, and Cathy the prices a, b and c per path, respectively, where a+b+c=MC. (The residents know these tax rates before stating how many paths they want.)

(a) If the taxes are set so that each resident shares the cost evenly (a=b=c), how many paths will be built?

(b) Show that the government can achieve the social optimum by setting the correct tax prices a, b and c. What prices should it set?

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