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C. If the village council sets a quota on the total amount of water such that the spring is used efficiently, what would be the quota and the market value of the water taken per day? Answer: Suppose the village council sets a quota on the total amount of water under the efficient condition, the quota should be 200 gallons. And the market value 1. Why are fish in the ocean an example of a resource that suffers from the of the water taken per day is about $30x200 = $6,000. tragedy of the commons but cattle grazing in a farmer's pasture do not suffer from the tragedy of the commona? Use the following data to work Problems in Question 3. ANSWER: As public resources, fish in the ocean suffer the tragedy of the Kaiser's Ice Cream Parlour hires workers to produce milkshakes. The market for milkshakes is perfectly competitive, and the price of a milkshake is $4. The labour commons since they use them for profit by any means, including overfishing. market is competitive, and the wage rate is $40 a day. The table shows the These problems do not apply to cattle that graze on a farmer's pasture workers' total product schedule. because the farmer uses them prudently to ensure sustainability. Number of Quantity produced 3a. Calculate the marginal product of hiring the workers [milkshakes per day) fourth worker and the fourth worker's value 2. Use Figure below to work the problems. of marginal product. A spring runs under a village. Everyone can sink a well on her or his land and take 3b. How many workers will Kaiser's hire to water from the spring. Figure shows the marginal social benefit (MSB) from water 43 maximize its profit and how many and the marginal cost (MC) of taking it. 51 milkshakes a day will Kaiser's produce? 55 FIGURE 16.5 3c. If the price of a milkshake rises to $5, how Problems 20 to 22 many workers will Kaiser's hire? MSC 3d. Kaiser's installs a new machine for making milkshakes that increases the productivity of workers by 50 percent. If the price of a milkshake remains at 40 $4 and the wage rises to $48 a day, how many workers does Kaiser's hire? Price and cool (cents per litre 30 Economics in the News 20 4. After you have studied Economics in the News on pp. 368-369, answer the following questions: 10 a. What are the marginal private costs of and marginal private benefits from using carbon-free resources to generate electricity? 200 400 600 BOO b. What are the marginal social costs of and marginal social benefits from Quantity [litres per day) using carbon-free resources to generate electricity? C. How will a cap-and-trade scheme change the price that households pay for a. What is the quantity of water taken and what is the private cost of the water electricity? taken? d. How will a cap-and-trade scheme change the efficiency of electricity production? Answer: At the equilibrium in an unregulated market with an external cost. The quantity produced is where private marginal cost equals marginal social benefit. At this equilibrium condition, the quantity of water is 400 gallons, the corresponding price is $20