Exam 14: Public Goods and Tax Policy

MegaCable and Acme are competing for an exclusive contract to provide the city of Dustin with cable television for the next year. The firm that wins the contract will earn an economic profit of $5 million. The contact will be awarded to the firm that spends the most on lobbying. If both firms spend the same amount on lobbying, then the winner will be determined by a coin flip, so each will have a 50 percent chance of winning.   The socially optimal amount for each firm to spend on lobbying is ________.

If the popular television show The Bachelor is shown on pay-per-view television every Monday at 9pm, then the demand curve for each episode is given below. Given that the marginal cost of showing an episode to an additional household is $0:

Consider a town with three residents.  The residents' demand curves for various acres of a public park are shown below. The public is willing to pay $14 for the ________ acre of parkland. 

Will and Grace have adjoining unfenced back yards and each has just adopted a new puppy. Will values a fence between their yards at $250 and Grace values a fence between their yards at $200. The cost of building the fence is $300, which will be split equally if they both agree to build the fence. Therefore, their payoff matrix is as follows. If Will decides to build the fence, then Grace will earn a higher payoff by ________, and if Will decides to not build the fence, then Grace will earn a higher payoff by ________.

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C. If the good shown on the graphs is a private good, then at a price of $4, market demand is ________ units.

Assume that each day ten thousand children watch Sesame Street on public television and that watching Sesame Street generates a benefit of $100 per child per year. Once a year, public television hold a pledge drive asking viewers to make voluntary contributions in order to keep the programming available to everyone.   If public television stations collect less than $100 per child during the pledge drive, then this is evidence:

The table below shows the marginal benefit and marginal cost of purchasing an additional unit of 3 different public goods. Mar ginal benefit Marginal cost Total spending an the public Public pood 1 \ 20 \ 20 \ 1,500 Public pood 2 \ 15 \ 25 \ 800 Public pood 3 \ 10 \ 5 \ 700   Total economic surplus could be increased by reallocating total spending away from

The taxing agency in your state would like to impose a sales tax in a way that minimizes deadweight loss. To achieve this goal it should tax:

There are 20 residents in the village of Towneburg.  The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell. Collectively, the residents of Towneburg would be willing to pay ________ for the 25ᵗʰ shell, and the marginal cost of the 25ᵗʰ shell is ________.

There are ten states in the democratic nation of Katlandia, and each state has ten thousand residents. Although incomes vary, each Katlandian pays a tax equal to the total cost of all government projects divided by the number of residents in the country. Currently, two states each have one army base. An army base adds $2 million to a state's local economy each year. In addition, in terms of increased security, the annual marginal benefit to Katlandia of having an additional army base is shown below. The total cost of an army base is $8 million per year. If Katlandia builds a third army base, the country will have:

The socially unproductive efforts of people or firms to win a prize is called:

Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1,500 to Lane and $900 to Riley. Regardless of who pays for the paving both people will benefit from it.   If the cost of paving the driveway is $2,000 and Lane proposes that they each pay 50 percent of this cost, then Riley ________ agree to Lane's proposal because ________.

If the government uses a head tax to finance a public good, then the:

Assume that each day ten thousand children watch Sesame Street on public television and that watching Sesame Street generates a benefit of $100 per child per year. Once a year, public television holds a pledge drive asking viewers to make voluntary contributions in order to keep the programming available to everyone.   Suppose each parent has just one child who watches Sesame Street. Each parent has a private incentive to contribute ________ during the pledge drive.

If it is difficult, or costly, to prevent people who do not pay for a good from consuming the good, then the good is a ________ good.

Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1,500 to Lane and $900 to Riley. Regardless of who pays for the paving both people will benefit from it.   What is the most a contractor can charge to pave the driveway and still be assured of being hired by at least one of them?

If taxpayers pay a smaller fraction of their income in taxes as their incomes rise, the tax is ________ and if taxpayers pay a larger fraction of their income in taxes as their income rise, the tax is ________.

Assume that each day ten thousand children watch Sesame Street on public television and that watching Sesame Street generates a benefit of $100 per child per year. Once a year, public television holds a pledge drive asking viewers to make voluntary contributions in order to keep the programming available to everyone.   The broadcast of Sesame Street yields a total social benefit of ________ per year.

Pure public goods:

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell. If Towneburg's fireworks display has 20 shells, then the size of the display is: