Exercise 13 The presence of bees helps in the process of orchard pollination , which would otherwise be left to the wind . Discuss the externality that bockeepers impose on orchard owners , and the resulting scope for inefficiency. What would the Coase theorem predict in this environment? Exercise 14 There are 250 people on an island . Each person can be vaccinated against smallpox at no cost. Receiving the vaccine entails a 1 percent chance of serious illness; serious illness inflicts a cost 6. Given that a persons are vaccinated , the probability of an outbreak of smallpox is 1 - (n/250). In an outbreak of smallpox, every individual who is not vaccinated catches smallpox and suffers the cost 6, while every person who is vaccinated does not catch the discase 1. What is the socially optimal ( from the utilitarian viewpoint ) number of individuals that should receive the vaccine? How large is the probability of an outbreak of smallpox? 2. If left to their own devices, how many people will choose to receive the vaccine? How large is the probability of an outbreak of smallpox ? What is the social cost of an outbreak ? 3. Is government intervention justified in the case of infectious diseases? Exercise 15 Consider a person's preference for left and right shoes . Let (I,, ) denote an allocation representing the quantity of left and right shoes, respectively. The person's utility for shoes is given by u(I,, Ip) = min (1,,IR) where u(I ,, I,) represents the monetary equivalent in dollars for the consumer of consuming allocation (r, I ). For example, u(r,, I, ) = 2 means that the consumer is willing to pay up to 2 dollars to consume the bundle (I,, IR). A firm can produce individual shoes, left or right , at a monetary cost of 25 cents per individual shoe for the first 10 shoes , and thereafter the cost per shoe is 75 cents