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Social cost of common access

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1. Suppose that fishermen have unlimited access to a pond of fish. The market for fish is competitive, so fishermen take the price as given (face horizontal individual demand). The fishermen face a private marginal cost, but do not consider the additional cost of depleting the stock of fish in the pond. Graph the demand, private cost, and marginal social cost for fish from this pond, showing the efficient quantity, the actual quantity, and the social cost of common access.

2. A local government is considering building new public hiking trails in the town. Suppose that the trails are public goods. There are two types of people in the economy, hikers and non-hikers, who face different (aggregate) marginal benefit curves: MBH = 40 - 10Q and MBN = 15 - 5Q for the hikers and the non-hikers respectively, where Q is the miles of trails. On the same graph.draw the marginal benefit curves for each type of person and the overall economy.

Reference no: EM131038785

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