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Overfishing is a phenomenon that can be explained by the tragedy of the commons. Say there are 20 people in Gloucester, Massachusetts that can choose

Overfishing is a phenomenon that can be explained by the tragedy of the commons. Say there are 20 people in Gloucester, Massachusetts that can choose either to fish for North Atlantic cod (fish) for a living or help reenact the Revolutionary War (which is the only other alternative). Each person who fishes catches 50-2N fish per week, and each fish caught can be sold for $5/fish. Revolutionary War reenactors make $110/week.

a. What is the free market equilibrium amount of those who fish and those who reenact, and what is the total revenue in the town?

b. What is the amount of people who fish and reenactors that maximize town revenue, and what is this town revenue (HINT: The optimal N is an integer. Use a guess/check procedure or calculus to solve this problem. If using a guess/check procedure, I recommend a using a spreadsheet in order to make the calculations very quickly. Doing this by hand will take longer).

c. Briefly state what is causing the inefficiencies in the private market?

d. The Gloucester government wants to impose a flat fee ($F) for each person to fish from the North Atlantic. What fee should be set to achieve the optimal solution.

e. Say that each person has different skills at fishing, and the government cannot observe this. It does have a target goal of fish caught per week (X). Could a different policy be more efficient than a flat fee to fish? (Hint: Think about a cap and trade system.) Describe what that would be and why?

f. New York City recently imposed congestion pricing for vehicles (essentially like the flat fee policy above)? Why would the policy you described in part e. not work as well here? This is an open question with many potential answers.

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