Tutorial Questions 4

  

1. Consider the following list of goods and services:

 Law and order and police protection
 Roads and streets
 Education
 Mail delivery
 

(a) Are these public goods? To what extent does each satisfy the definition of a pure
public good?
(b) To what extent could these goods be supplied through a private market system?
(c) Why do governments involve themselves in the supply of these goods?
 

2. A paint factory is located on the shore of a small lake which is also used by an oyster
farmer. The factory can dispose of liquid waste from its production by either dumping it in
the lake, or by paying a constant price of $200 per ton to have it trucked away to an
alternative disposal site. The oyster farmer’s total costs depend on how much expense is
necessary to protect oysters from contamination, and therefore costs depend on how much
waste is dumped in the lake. The oyster farmer’s total costs are as follows:
Quantity of Waste dumped Oyster Farmer’s cost
by factory (tonnes per week) ($ per week)

0 300
1 400
2 550
3 750
4 1000
5 1300
6 1650
7 2050

(a) Calculate the marginal benefit to the factory, and the marginal cost to the oyster
farmer, of each successive tonne of waste dumped.
(b) Find the efficient amount of waste to be dumped in the lake.
(c) If the oyster farmer owned the lake, how much waste will be dumped and how much
will the factory pay the oyster farmer for permission to dump each successive tonne?
(d) If the factory owned the lake, how much waste will be dumped and how much will
the farmer pay to the factory for a lease to use the lake?
(e) If the lake is state property, what pollution tax should the government levy to achieve
an efficient amount of pollution?