 |  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
Practice Activity 1
Paying for Public Goods
Mr. Jones and Mrs. Smith have side-by-side cottages by a small lake in Saskatchewan. They share a path through some trees which leads to the lake. Each winter the path is damaged by frost and requires gravel to be spread along its length to cover the mud beneath. The demand curves below show Mr. Jones's and Mrs. Smith's demand curves for gravel for the path.
 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif:: ::/sites/dl/free/0070889740/39505/pa15_01_350_179.gif','popWin', 'width=366,height=195,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (50.0K)</a>]]>
If Mr. Jones has to keep the path repaired without any contribution from Mrs. Smith, how much gravel will Mr. Jones purchase and what will his total cost be? If Mr. Jones and Mrs. Smith combine forces, what will their collective demand look like? Draw it in a graph. What will the socially optimal amount of gravel be, and what will be its total cost? Will the path be better maintained than when Mr. Jones alone paid for repairs? If Mr. Jones and Mrs. Smith share the cost of the gravel, will Mr. Jones end up paying more or less than he would if he maintained the path himself?
See our suggested answer for this activity.
¨Return to Cyberlecture. |
|
2003 McGraw-Hill Higher Education