Chapter 5: Q 2 (page 118)
How might the federal or state governments act to try to boost the external benefits arising from inoculations against the measles virus?
The government can grant special privileges to those with the measles vaccination such as subsidized air tickets, and complimentary food.
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Suppose that the current price of a tablet device is \(300 and that people are buying 1 million devices per year. The government decides to begin subsidizing the purchase of new tablet devices. The government believes that the appropriate price is \)260 per tablet, so the program offers to send people cash for the difference between \(260 and whatever the people pay for each tablet they buy.
(a) If no consumers change their tablet-buying behavior, how much will this program cost the taxpayers?
(b) Will the subsidy cause people to buy more, fewer, or the same number of tablets? Explain.
(c) Suppose that people end up buying 1.5 million tablets once the program is in place. If the market price of tablets does not change, how much will this program cost the taxpayers?
(d) Under the assumption that the program causes people to buy 1.5 million tablets and also causes the market price of tablets to rise to \)320, how much will this program cost the taxpayers?
Many economists suggest that our nation's legal system is an example of a public good. Does the legal system satisfy the key properties of public good? Explain your reasoning.
Why do you think that the federal government requires rail operators to mount expensive horns and sound them at prescribed decibel levels at all street crossings?
An online video game has the technical capability for a large number of players to participate, as long as the game administrator works to ensure the constant functionality of the game. Adding more players deprives no other participants of the entertainment services provided by the online game. It has been easy, however, to set up a system for excluding participation by anyone who fails to contribute $5 per month to a fund that ensures covering extra expenses generated by that player's participation. Is this game a public good?
A government offers to let a number of students at a public school transfer to a private school under two conditions: It will transmit to the private school the same per-pupil subsidy it provides the public school, and the private school will be required to admit the students at a below-market net tuition rate. Will the economic outcome be the same as the one that would have arisen if the government instead simply provided students with grants to cover the current market tuition rate at the private school? (Hint: Does it matter if schools receive payments directly from the government or from consumers?)
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