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Practice Questions 4

Question 1

Suppose you have a friend who works in fundraising at the public radio station in your town. One day she tells you excitedly that the station has just been selected to receive a large grant  from the federal government. The marketing department at the station plans to feature details about the grant in an upcoming promotional email, hoping that the news will drive a wave of new donations.

Using the theoretical tools of our discussion of week 4, discuss what would have to be true for your friend’s idea for a promotional email featuring the new grant to be effective in increasing donations.

Question 2

To determine the right amount of a certain public good to provide, the government of

Wakanda decides to survey its residents about how much they value the good. It will then

finance the public good provision by taxes on residents. Describe a tax system that would

lead residents to underreport their valuations. Describe an alternative system that could lead residents to overreport their valuations.

Question 3

Why can the public good provision problem be thought of as an externality problem?

Question 4

We add the demands of private goods horizontally but add the demands of public goods

vertically when determining the associated marginal benefit to society. Why do we do this, and why are the procedures different for public and private goods?

Question 5

The citizens of Balaland used to pave 120 miles of roadways per year. After the government of Balaland began paving 100 miles of roadways per year itself, the citizens cut back their paving to 30 miles per year, for a total number of roadway miles paved per year of only  130 miles. What might be happening here?

Question 6

Ryan’s demand for hamburgers (a private good) is Q = 21 − 6P and Madison’s demand is Q = 6 − 3P.

(a) Write down an equation for the social marginal benefit of hamburger consumption.

(b) Now suppose that hamburgers are a public good. Write down an equation for the social marginal benefit of hamburger consumption.