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A village has six residents, each of whom has accumulated savings of $100. Each villager can use this money either to buy a government bond that pays 14 percent interest per year or to buy a year-old llama, send it onto the commons to graze, and sell it after 1 year. The price the villager gets for the 2-year-old llama depends on the quality of the fleece it grows whille grazing on the commons: That in turn depends on the animal's access to grazing. which depends on the number of llamas sent to the commons, as shown in the following table: The villagers make their investment decisions one after another, and their decisions are public. a. If each villager decides individually how to invest, how many llamas will be sent onto the commons, and what will be the resulting village income? Number of llamas: Instructions: Enter your response as a whole number. Village income: $ b. What is the socially optimal number of llamas for this village? Socially optimal number of llamas: What would village income be if the socially optimal number of llamas were sent onto the commons? Number of llamas: Instructions: Enter your response as a whole number. Village income: \$ b. What is the socially optimal number of llamas for this village? Socially optimal number of llamas: What would village income be if the socially optimal number of llamas were sent onto the commons? Instructions: Enter your response as a whole number. Village income. $ c. The villoge committee votes to auction the right to graze llamas on the commons to the highest bidder Assuming villagers can both borrow and tend at 14 percent annual interest, how much will the right sell for at auction? Instructions: Enter your response rounded to two decimal places. $ What will be the resulting village income? Instructions: Enter your response as a whole number. Village income: 5 A village has six residents, each of whom has accumulated savings of $100. Each villager can use this money either to buy a government bond that pays 10 percent interest per year or to buy o 1-year-old goat, set it onto the commons to graze, and sell it after a year. The price the villager gets for a 2-year-old goat depends on the amount of weight it gains while grazing on the commons, which in turn, depends on the number of goats sent onto the commons, as shown in the following table: a. If each villager decides individually how to invest, then how many goats will be sent onto the commons and how many villagers will buy a bond? goat(s) will be sent onto the commons and villager(s) will buy government bonds What will be the resulting village income? 5 b. What is the socially optimal number of goats for this village to send onto the commons? goat(5) What would village income be if the socially optimal number of goats were sent onto the commons? c. The village committee votes to auction the right to graze goats on the commons to the highest bidder. Asstuming the villagers can both borrow and lend at 10 percent annual interest, how much will the right to sell for at auction? a. If each villager decides individually how to invest, then how many goats will be sent onto the commons and how many villagers will buy a bond? goat(s) will be sent onto the commons and villager(s) will buy government bonds What will be the resulting village income? $ b. What is the socially optimal number of goats for this village to send onto the commons? goat(5) What would village income be if the socially optimal number of goats were sent onto the commons? $ c. The village committee votes to auction the right to graze goats on the commons to the highest bidder. Assuming the villagers can both borrow and lend at 10 percent annual interest, how much will the right to sell for at auction? $ How many goats will the new owner send onto the commons, and what will be the resulting village income? (2) goat(s) will be sent out onto the commons and the resulting village income will be $ The following data show the relationship between the number of divivers who leave for work at 8 a.m., their average commute time, and their marginal benefit of commuting. One way for the government to increase economic efficiency would be for it to Multiple Choice require all 500 divers to collectively decide when each should leave for work: subsidize gasoline consumption. require employers to allow workers to artive lote for work. charge a toll to use the highway during rush hour. Curly and Moe are considering living alone or being roommates and splitting the rent for the next 12 monthsi if they live alone, they each rent a one-bedroom, one-bath apartment for $500 per month, while if they ore roommates, they can split a two-bedroom, one-bath apartment for $800 per month. The one difficulty they have is that Moe snores very loudly. Curty estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snore-eliminating device for $50 per month. Curly and Moe have both taken an economics course and sa are willing to apply the Coase theorem and negotiate. Who wial compensate the other? Maltiple Cholce Neather Moe nor Curly has the initial property right, and so neither will compensate the othec. Moe must compensate Curly because Moe is the one who is snoting Curly must compensate Moe because Curly is the one who is bothered by the snoring. Either Moe will compensete Curly or Curly will compensate Moe becouse the aitemative, renting separate apartments, leaves bach worse off. According to the textbook, if students ore graded on a curve so that each student's grade depends upon their performance telative to other students, the resulting positional arms race is partially offset by social norms that Mutiple Choice encourage everyone to study hard discourage studying by labeling hard-working students as "nerds." award only the very top pertormers. encouroge people to save money for college. The town of Pleasantville has two local TV stations. If one of them invests in the newest weather forecasting technology, one can predict thet Muitiple Choice the other station will continue to use its current weather forecasting technology the other station will upgrade its weother forecasting technology. both stations eventually will switch back to the old weather forecasting technology. the quality of weather forecasts will remain unchonged. Numerous studies have shown that breathing second-hand cigarette smoke is harmful to your health. This suggests that a tax on cigarettes will Muliple Choice increase total economic surplus. decrease total economic surplus. have no effect on total economic surplus. lead to a decrease in the price of cigarettes

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