Question2 - Chapter10(20marks)

A.Using a demand and supply framework, explain why governments subsidize university education. (4 marks)

B. A local drama company proposes a new neighbourhood theatre in Vancouver. Before approving the building permit, the city planner completes a study of the theatre's impact on the surrounding community. (16 marks)

a. One finding of the study is that theatres attract traffic, which adversely affects the community. The city planner estimates that the cost to the community from the extra traffic is $5 per ticket. What kind of an externality is this? Why?

b. Graph the market for theatre tickets, labelling the demand curve, the social-value curve, the supply curve, the social-cost curve, the market equilibrium level of output, and the efficient level of output. Also show the per-unit amount of the externality.

c. On further review, the city planner uncovers a second externality. Rehearsals for the plays tend to run until late at night, with actors, stagehands, and other theatre members coming and going at various hours. The planner has found that the increased foot traffic improves the safety of the surrounding streets, an estimated benefit to the community of $2 per ticket. What kind of externality is this? Why?

d. On a new graph, illustrate the market for theatre tickets in the case of these two externalities. Again, label the demand curve, the social-value curve, the supply curve, the social-cost curve, the market equilibrium level of output, the efficient level of output, and the per-unit amount of both externalities.

e. Describe a government policy that would result in an efficient outcome.

Question3- Chapter11(10marks)

The X nation has 5 million residents, whose only activity is producing and consuming fish. They produce fish in two ways. Each person who works on a fish farm raises 2 fish per day. Each person who goes fishing in one of the nation's many lakes catches X fish per day. X depends on N, the number of residents (in millions) fishing in the lakes. In particular, if N million people fish in the lakes, each catches X = 6 - N fish. Each resident is attracted to the job that pays more fish, so in equilibrium the two jobs must offer equal pay. (20 marks)

a. Why do you suppose that X, the productivity of each fisherman, falls as N,the number of fishermen, rises? What economic term would you use to describe the fish in the country's lakes? Would the same description apply to the fish from the farms? Explain. (2 marks)

b.The country's Freedom Party thinks every individual should have the right to choose between fishing in the lakes and farming without government interference. Under its policy, how many of the residents would fish in the lakes and how many would work on fish farms? How many fish are produced? (2marks)

c.The country's Efficiency Party thinks X should produce as many fish as it can. To achieve this goal, how many of the residents should fish in the lakes and how many should work on the farms? (Hint: Create a table that shows the number of fish producedon farms, from the lakes, and in totalfor each N from 0 to 5.) (6marks)