Temple University Department of Economics

Economics 52

Externalities Homework

Name

1.

a. Find the equilibrium price and quantity of soda cans per day sold in the dorm.

Price Quantity

b. If each soda can imposes $.05 in costs on society (because they become litter or must be thrown away or recycled), what is the socially optimal number of soda cans for the dorm? Quantity

c. How could a tax on soda cans be used to assure the socially optimal number of cans are sold? The tax should be

2.

a. If your neighbor makes her decision without considering your orchard, will she keep the bees? Yes No

b. Is it socially optimal for your neighbor to keep the bees? Yes No

c. If your neighbor consults with you, will she decide to keep the bees? That is, will you and she agree on a compensation scheme if she keeps the apiary in business?Yes

d. How much will you pay to your neighbor to induce her to keep her bees? At least but less than