 |  Principles of Microeconomics, 1st Canadian Edition Robert H. Frank,
Cornell University
Ben S. Bernanke,
Princeton University
Lars Osberg,
Dalhousie University
Melvin Cross,
Dalhousie University
Brian MacLean,
Laurentian University
Public Goods and Taxation
Graphing ExercisesExtending the Text Example 15.4 asks; "What is the optimal quantity of urban parkland?" Using a marginal cost and demand model the example makes the point that the optimal quantity will occur where the public's willingness to pay is equal to the marginal cost of providing the land. |
| | 1. | In this case, suppose the city planners decide that a particular number of hectares are appropriate, unaware that this is below the optimal (a point like A0 in your text, Figure 15.3). What is the loss to the community in potential economic surplus?
See our suggested answer. |
| | 2. | As you approach the optimal quantity from the left, what happens to the deadweight loss?
See our suggested answer. |
| | 3. | How should city planners go about determining the amount of parkland that is appropriate?
See our suggested answer. |
| On Your Own: How does the size of the population affect the provision of public goods? On the surface it seems that in a population of 300, as opposed to a population of 150, we should simply provide twice the level of public goods. However, this is not the case. Full Disclosure Statement:
In the analysis below, we are assuming that the population can be divided into two types of individuals, call them Type-A and Type-B. While this simple division into two types is not the case outside this model—some of us like parkland less than some but more than others—the additional information this difference would provide is simply too small to bother with in a large population. Thus we can treat everyone as though they were the "average" individual. In small populations, such as in Exercise 15.2 in your text, the individual differences matter a great deal, but once we get to the size of a medium-sized town, individuality is lost in the population size. To begin your analysis, open a new window containing the interactive Marginal Cost and Demand model graph or, if the model is still open, press the Reset button. |
| | 4. | What is wrong with the superficial statement above? Use the fact that you can change the population in the model to answer the question.
See our suggested answer. |
| | 5. | As we continue to increase the population, what happens to the general shape of the demand curve?
See our suggested answer. |
| | 6. | As we continue to increase the population, the optimal quantity of the public good to be provided approaches the quantity we would take, as individuals, only if it were free. Does this make intuitive sense?
See our suggested answer. |
| Question to Think About... - How does this example of parkland apply to the provision of a police force in a community? Does it make sense that as a city gets larger the police force also gets larger, but at a slower rate?
- As we join together into organizations such as NATO and provide for a common defence does the proportion of taxes from each individual going toward defence expenditure tend to rise or fall?
- Is it likely we will have more and better highways if we moved away from providing them as a public good and went back to a system of private, toll roads such as we had during colonial times?
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2003 McGraw-Hill Higher Education