1. Consider the problem of too much garbage in the US. In Albert's home town, the demand for garbage collection per bag is qd = 2000 - 100p. It costs the city $2 for each bag it picks up (MC = $2). However, the town does not charge its residents for each bag picked up. The price a resident sees is $0 for each bag. The service is paid through city property tax (i.e., people do pay for it).
a. Draw the demand for garbage (include the MC of the service).
b. How many units of garbage are collected?
1. What is the total value of the service and the value of the bag thrown out with the lowest value?
2. How much does the service cost the city (and hence the users)? What is the consumer surplus?
c. Now instead the city charges $2 per bag collected. (Cities that do this are often criticized for charging for something that was "free" before.) How does the price increase affect the amount of garbage collected? Is this good?
1. With p = $2, what is the total value of this service and the value of the unit with the lowest value provided? What is the total cost of this service?
2. What is the consumer surplus? Are the citizens (as a whole) better off?