The same basic issues applied to grazing land in the past when small towns would set aside an area, known as the "commons," on which the residents' livestock could graze. Suppose the social marginal benefits and social cost of using the grazing land are as shown below.

1.If residents are permitted unlimited access to the use of the grazing land at a zero price, what is the private marginal cost grazing? Draw the MCp curve in the diagram.

2.Given your answer to part (1), what level of grazing will occur if there is unrestricted access to the land?

3.Is the outcome from part (2) efficient? Why or why not?

4.What is the efficient level of grazing, and how is this shown in the diagram? Explain.

5.Explain why charging residents a fee per unit of access would improve allocative efficiency. How would this be shown in the diagram?

6.Explain why selling individual parcels of the grazing land to the town's residents is also likely to improve efficiency.