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1.
A. State the condition for the Pareto optimal provision of a public good. Interpret the condition.
B. Consider agent A with (inverse) demand curve for the public good and agent B with inverse demand , where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p’s]
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- 1. a) State the condition for the Pareto optimal provision of a public good. Interpret the condition. b) Consider agent A with (inverse) demand curve for the public good and agent B with inverse demand , where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p’s] c) Describe the Vickrey-Clarke-Groves (VCG) Mechanism, provide examples and discuss problems with the VCG mechanism.b) Consider agent A with (inverse) demand curve for the public good and agent B with inverse demand , where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p’s]A Consider agent A with (inverse) demand curve for the public good P₁ = 60 - 2QA and agent B with inverse demand PB = 90 - 5QB, where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p's]
- Suppose there are three consumers of a public good with the following marginal benefits of consumption related to the quantity of the public good provided: Consumer 1: MB1 = 5 – 2Q Consumer 2: MB2 = 4 – Q Consumer 3: MB3 = 3 – Q Calculate and draw the total marginal benefit function of the public good in a fully labelled diagram. If the marginal cost of producing the public good is MC = 2Q, what is the efficient quantity and how much should each consumer contribute to its provision if it were to provided at the efficient level (assuming the non-rival and non-excludable problems could be resolved)?b) Consider agent A with (inverse) demand curve for the public good PA = 60 - 2QA and agent B with inverse demand PB = 90 - 5QB, where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p's]a) State the condition for the Pareto optimal provision of a public good. Interpret the condition. b) Consider agent A with (inverse) demand curve for the public good PA = 60 - 2Q and agent B with inverse demand PR = 90 - 5QR, where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p's] c) Describe the Vickrey-Clarke-Groves (VCG) Mechanism, provide examples and discuss problems with the VCG mechanism.
- Consider agent A with (inverse) demand curve for the public good PA = 60 − 2QA and agent B with inverse demand PB = 90 − 5QB, where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p’s]a) State the condition for the Pareto optimal provision of a public good. Interpret the condition. B b) Consider agent A with (inverse) demand curve for the public good P₁ = 60 - 2Q and agent B with inverse demand PR = 90 - 5QB, where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p's] c) Describe the Vickrey-Clarke-Groves (VCG) Mechanism, provide examples and discuss problems with the VCG mechanism.Consider agent A with (inverse) demand curve for the public good and agent B with inverse demand , where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p’s - image attached that has the inverse demand function
- Practice: Suppose that are two people considering purchasing a public good. For each quantity purchased(Q), each individual gains a marginal benefit given by the following: Person 1:MB-12-Q. Person 2:MB2-24-2Q. The Marginal Cost of each unit of Qis given by MC-2Q Given the above, answer the following questions: a) If each person had to buy their own quantity of the public good how much would each person want to purchase? How much would end up being purchased privately? Q together b) Write down the Social Marginal Benefit Curve. What is the socially optimal equilibrium quantity? Now suppose for Part c that we are at the private market equilibrium. which is your answer from Part a. The government wants to step in and tax each of these individuals and use the raised revenue to purchase another unit of this good. Each individual can be taxed a different amount c) Propose a tax that will both (i) allow enough money to be raised for this additional unit of the public good and (ii) will make…Use the following diagram in which S is the market supply curve and S, is a supply curve comprising all costs of production, including external costs, to answer the question below. Price Quantity Assume that the number of people affected by these external costs is large. Without government interference, this market will reach a(n) A) higher price than is consistent with an optimal allocation of resources. B) optimal allocation of society's resources. C) overallocation of resources to this product. OD) underallocation of resources to this product.This problem uses the 'wedge' approach in a supply and demand diagram to show the effect of a tax. The government is considering levying a tax of €20 per unit on either carbon emissions or car batteries. The supply curve for each of these goods is identical and is shown by S. The demand for carbon emissions is shown by D1, and the demand for car batteries is shown by D2. Assume the government were to tax carbon emissions. The following graph shows the supply and demand for this good. The graph also shows a wedge representing the tax. Use the tan triangle (dash symbols) to shade the area that represents the deadweight loss associated with the tax.