The prevention of viruses crossing the species barrier is a public good, since once the virus...

 

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The prevention of viruses crossing the species barrier is a public good, since once the virus has found a way to infect humans, it affects everyone. Let G be the public good of activities to prevent such a jump. Suppose the rich countries value the public good according to DR(G) = 120-2G and the poor countries value the public good according to Dp(G) = 60-G. Suppose that each unit of G costs MC = 30. (a) Construct a graph showing how much each country, GR and Gp, would provide were it the only provider. Show also the social marginal benefit curve, SM B, and explain what property of public goods enables its construction. Then find G", the socially optimal level of the public good. Show each of these on your graph and calculate them numerically. (b) Suppose that the socially optimal level of the public good is provided and that it is financed by Lindahl taxes. Find the Lindahl tax on the Rich and on the Poor, and show these on your graph from part (a). Explain what property that Lindahl taxes have that any other method of financing the public good would not exhibit. If the Lindahl solution where implemented, calculate numerically the total surplus to society (and show this on your graph), and show that it is indeed equal to the sum of the surplus by each country. The prevention of viruses crossing the species barrier is a public good, since once the virus has found a way to infect humans, it affects everyone. Let G be the public good of activities to prevent such a jump. Suppose the rich countries value the public good according to DR(G) = 120-2G and the poor countries value the public good according to Dp(G) = 60-G. Suppose that each unit of G costs MC = 30. (a) Construct a graph showing how much each country, GR and Gp, would provide were it the only provider. Show also the social marginal benefit curve, SM B, and explain what property of public goods enables its construction. Then find G", the socially optimal level of the public good. Show each of these on your graph and calculate them numerically. (b) Suppose that the socially optimal level of the public good is provided and that it is financed by Lindahl taxes. Find the Lindahl tax on the Rich and on the Poor, and show these on your graph from part (a). Explain what property that Lindahl taxes have that any other method of financing the public good would not exhibit. If the Lindahl solution where implemented, calculate numerically the total surplus to society (and show this on your graph), and show that it is indeed equal to the sum of the surplus by each country.

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a If Rich and Poor countries individually provide the public good then the poor country would provid... View the full answer