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Chapter 5: Q 1 (page 116)
How does a city's decision to assess substantial fines on rail operators that persistently generate traffic congestion affect the supply curve for rail services within the city?
The supply curve for rail services within the city is shifted leftward.
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Suppose that the current price of a tablet device is \(300 and that people are buying 1 million devices per year. The government decides to begin subsidizing the purchase of new tablet devices. The government believes that the appropriate price is \)260 per tablet, so the program offers to send people cash for the difference between \(260 and whatever the people pay for each tablet they buy.
(a) If no consumers change their tablet-buying behavior, how much will this program cost the taxpayers?
(b) Will the subsidy cause people to buy more, fewer, or the same number of tablets? Explain.
(c) Suppose that people end up buying 1.5 million tablets once the program is in place. If the market price of tablets does not change, how much will this program cost the taxpayers?
(d) Under the assumption that the program causes people to buy 1.5 million tablets and also causes the market price of tablets to rise to \)320, how much will this program cost the taxpayers?
Consider a nation with a government that does not provide people with property rights for a number of items and that fails to enforce the property rights it does not assign for the remaining items. Would externality be more or less in this nation than in a country such as the United States? Explain.
Why do representatives of taxpayers who fund the NSLP program experience more difficulties in designing effective incentive structures for officials who manage that program than does a company's shareholders who seek to change the incentives confronting firms' managers?
Consider the market for a health care service displayed in Figure, in which the government currently pays a per-unit subsidy M.If the government raises the value of M to a larger dollar amount per unit of service, what will happen to the out-of-pocket price paid by consumers, the price required to induce suppliers to provide services, and the number of services provided? Will the government's total expense for this health care service rise or fall?
Displayed in the diagram below are conditions in the market for residential Internet access in a U.S. state. The government of this state has determined that access to the Internet improves the learning skills of children, which it has concluded is an external benefit of Internet access. The government has also concluded that if these external benefits were to be taken into account, 3 million residents would have Internet access. Suppose that the state government鈥檚 judgments about the benefits of Internet access are correct and that it wishes to offer a per-unit subsidy just sufficient to increase total Internet access to 3 million residences. What per-unit subsidy should it offer? Use the diagram to explain how providing this subsidy would affect conditions in the state鈥檚 market for residential Internet access.
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