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?