Homework #3, Econ 611, Prof. Hanson

1. Consider a market for pet sitting, where
someone will come and stay at your house and watch your pets while you are
away. The person who values getting his
house sat the most is willing to pay $100 for it (so P_{D }= 100 when Q_{D} = 0).
The hundredth person is willing to pay nothing (so P_{D }= 0 when Q_{D} = 100.)
The person who likes to pet sit the most is willing to pay $20 for the privilege,
but the hundredth person must be paid $30 to pet sit. Demand and supply are both linear (i.e.,
lines on a P,Q graph).
What is the free market quantity and price of pet sitting? What is the producer surplus (PS), consumer
surplus (CS) and dead weight loss (DWL).

2. If the people who pet sit must pay a $40
tax per event, what will be the quantity, price, PS, CS, DWL, and tax revenue
(TR)?

3. If a law prohibits giving cash for pet
sitting, and people must stand in line to find a willing pet sitter, what is the quantity, price, PS, CS, and DWL?

4. If a law prohibits giving cash for pet
sitting, and pet sitters are randomly assigned to people who ask for them, what
is the quantity, price, PS, CS, and DWL?

5. Five
students share a house, and might buy cable TV, at a total cost of $40 per month. Two of the students clearly love
cable TV, and each place a value of $20 per month on having cable TV.
Among the other three students, two of them mildly like cable TV, and would
benefit by $5 per month, while the other student dislikes cable TV, and would
suffer a loss of $5 per month. Unfortunately, there is no way to tell by
looking at them which of these last three students is the one who dislikes
cable TV.

a. If
the students vote on whether to buy cable TV, with each student paying the same
share of the cost, will the outcome be economically efficient?

b. Is
there a way to use transfers among the students so that all the students
benefit from buying cable TV?