Exploring the Commons

11. Mrs. Jones brings home a dozen candy bars each Monday and tells her two children they can eat them whenever they want. Mrs. Smith also brings home a dozen candy bars each Monday and tells her two kids they can eat them, but she says that six are for the older child and six are for the younger child.

a) What does economic theory predict about the life expectancy of candy bars in these two households?
b) The logic in this problem illustrates the logic in what economic problem?
c) What does this simple example suggest about property rights?

12. Suppose that in Wayzata Sea the number of fish harvested depends on the number of boats that fish. The following table shows how the value of the catch increases as the number of boats increases. Suppose that it costs 65 to add a boat to the fishing fleet.

 Number of Boats Value of Catch Average Catch Marginal Catch 1 (first) 100 2 (second) 170 3 (third) 222 4 (fourth) 264 5 (fifth) 295
c) If entry of boats is unrestricted, how many boats will tend to fish in this sea?

d) If one company has the exclusive right to fish in this area, how many boats will it use if it maximizes profit?

e) What is the economically efficient number of boats in this problem?

13. Explain why people can consider the following items to be free. Then explain why (or when) they are in fact scarce. Explain the problem that occurs, and give a possible solution to eliminate it.

a) Ducks migrating south for the winter.
b) Travel on a freeway during rush hour.
c) Whales in the middle of the ocean.
d) Water in a river running through an industrial area.
e) Water in an aquifer in a fertile but dry area.
f) Buffalo in the 19th century.
g) Trees on public land on a heavily populated island that needs firewood.
h) Food in a college cafeteria for which students pay a fixed board fee.
i) Mammoths to Ice-Age hunters.

14. We have been considering a resource bundle with three uses. Use A has a value of \$25 to people, use B has a value of \$22, and use C has a value of \$20. A system of making a choice that delivers the resources to use A was efficient, and that markets can be efficient. However, markets may fail and allocate inefficiently. How will the resources be used in the following cases?

a) An industry that has the problem of the commons finds that when there are three producers, total revenue is \$120. When there are four, total revenue increases by \$20 to \$140. Use C is adding the fourth producer.
b) An industry has positive externalities. If more is produced, buyers will get benefits of \$21, but there will be spillover benefits of \$4. This use of resources is use A.
c) An industry has negative externalities. If more is produced, buyers get benefits of \$26, but there are spillover costs of \$4. The extra production is use B.