Suppose that you have two people in an economy, Ms. Hundley and Mr. McKenna, who want to produce a public good S. Suppose we calculate the Lindahl equilibrium using the method in your textbook. In this case, the demand curve for Ms. Hundley is S = P 1/2 . The demand curve for Mr. McKenna is S = 8/P. If the marginal social cost of the project is 10, what is the Lindahl equilibrium quantity of S? What are the Lindahl prices?
What will be an ideal response?
Set P 1/2 = 8/P. Multiply both sides by P, leaving P 3/2 = 8. Therefore, P = 8 2/3 = 4. At P = 4, S* = 2.
Mr. McKenna pays 4. Ms. Hundley pays 6.
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Figure 33.2Refer to Figure 33.2. England has
A. a comparative advantage in producing cars. B. no comparative advantage in producing either cars or trucks. C. a comparative advantage in producing trucks. D. an absolute advantage in producing cars.
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