Free-Response Questions 1. Suppose there are 100 residents on the island of Sunshine. Whenever someone purchases a palm tree to plant on the island, everyone on the island receives the same benefits from the tree, which include beauty, shade, and erosion control. The table below shows the total social cost (which is also the total private cost) and the total private benefit received per resident depending on the quantity of palm trees purchased. Use this information to answer the questions that follow. Quantity of palm trees Total social cost (total private cost) Total private benefit per resident 0 50 $0 1 200 8 2 400 12 3 600 14 4 800 15 a. Does the purchase of palm trees create a negative consumption externality, a positive consumption externality, or no externality? Explain. b. Draw a graph that depicts the marginal social cost and the marginal social benefit of palm trees. c. What quantity of palm trees would be purchased if they were sold in a private market? Explain. d. What is the socially optimal quantity of palm trees? Explain. e. In this situation, are palm trees a private good, a public good, or a common resource? f. What could be an appropriate governmental policy response to this situation? Explain. (10 points) 2. Suppose Dan and Ali are the only residents of Parklan Their town can have up to 10 park benches, which are nonrival and nonexcludable. Dan would pay up to $900 for the first bench, $800 for the second bench, and $100 less for each additional bench, down to 50 for the tenth bench. Ali would pay up to $300 for each bench up to 10. a. Are park benches in Parkland a private good, a public good, or a common resource? Explain b. Draw and label the individual demand curves for Dan and Ali. c. Draw and label the social marginal benefit curve fo benches in Parkland. d. If benches cost $950 each, what is the socially optimal quantity of benches? e. Why is it unlikely that a private bench market will sell the socially optimal quantity of benches? f. What is a common solution for achieving the socially optimal quantity in situations like this? (7 points) 3. The country of Nina has a Gini coefficient of 0. The country of Pinta has a Gini coefficient of 1. a. On a correctly labeled graph, draw the Lorenz curve for Nina. (You won't have to draw a Lorenz curve on the AP exam, but try this one; it's simple and instructive.) b. On your graph, draw any one point that lies on the Lorenz curve for Pinta and label it X c. The country of Santa Maria has a Gini coefficient of 0.5, and wants to enact tax legislation to move it Lorenz curve closer to that of Nina. Should Santa Maria adopt a tax that is regressive, progressive, or proportional? Explain. (5 points)