Homework #4,  Econ 611, Prof. Hanson

1.     The private demand for telescopes is P =  4 – Q, while the supply of telescopes is P = 1 + (Q/2).  Every telescope bought and used benefits the rest of us by \$3, since it might discover an asteroid heading toward Earth in time for us to prevent disaster.  What would be the dead weight loss from not having a tax or subsidy on telescopes?   What tax or subsidy would eliminate this loss?

2.     The following table shows the number of fish caught per day in a given lake as a function of the number of fishing boats there.  If fish can be sold for \$1 each, and it costs \$100 to rent a fishing boat (including labor) for a day, with free entry how many boats would fish there?  If someone owned the lake, how many boats would fish there?

 # Boats # Fish Caught 1 120 2 240 3 360 4 440 5 500 6 550 7 580 8 600

3.     Which of the following externalities are likely to lead to a market failure requiring the intervention of the federal government:  fights between siblings, illegal immigrants take US jobs, local traffic congestion, CO2 emissions, employees sneezing on each other at work, hi-tech firms benefit by locating near a top university, a border state lax about letting terrorists come in from other nations?

4.     If almost everything we do can achieve status for us, what policies could reduce the negative status externality?