Part A- Problems
Problem 1 - There are two workers. Each worker's demand for a public good is P = 20 - Q. The marginal cost of providing the public good is $24. The accompanying graph summarizes the relevant information.
a. What is the socially efficient quantity of the public good?
b. How much will each worker have to pay per unit to provide the socially efficient quantity?
c. Suppose the two workers contribute the amount needed to provide the quantity of public good you identified in parts (a) and (b). A third worker values the public good just like the two contributing workers, but she claims not to value the good because she wants to "free ride" on the payments of the other two workers.
(1) Given the three worker's true demands for the public good, is the amount of the public good provided by the two workers socially efficient?
(2) Compare the level of consumer surplus enjoyed by these three workers. Which worker(s) enjoys the most surplus?
Problem 2 - As the manager of a monopoly, you face potential government regulation. Your inverse demand is P = 40 - 2Q, and your costs are C(Q) = 8Q.
a. Determine the monopoly price and output.
b. Determine the socially efficient price and output.
c. What is the maximum amount your firm should be willing to spend on lobbying efforts to prevent the price from being regulated at the socially optimal level?
Problem 3 - China's entry into the World Trade Organization (WTO) in 2001 created more competition between local and foreign firms, and also provided China greater access to the market for exports. This was particularly true in the market for rubber since, at the time, China was the world's second largest consumer of rubber (China is now the world's largest consumer of rubber). Shortly after joining the WTO, China eliminated its import quota on rubber. What impact do you think the import quota reduction likely had on the price of rubber and the quantity of rubber exchanged in China? What implications do you think the elimination of the quota on rubber had on China's social welfare?
Part B - Paper
Write a paper that uses the material we have studies thus far in our course to analyze, compare and contrast some of the most popular online auction sites.