JNU SSS 2012 Question 91: Market failure, externalities and public goods
In a village, there is a field. If n cows simultaneously graze on this field, the value of milk produced by each cow is v(n) :
v(1)
v(2)
v(3)
v(4)
v(5)
v(6)
v(7)
22
18
15
12
10
9
8
Assume that the market price of a cow is Rs 11.
Assume that the villagers implement the following rule :
Each time a person buys a cow, she must pay Rs t to the village council. Thus, a person incurs a cost of Rs 11+t for each cow that she buys.
For which of the following values of t will the equilibrium number of cows bought and grazed on the field equal the number that maximizes the village's aggregate income?
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In a village, there is a field. If n cows simultaneously graze on this field, the value of milk produced by each cow is v(n): | v(1) | v(2) | v(3) | v(4) | v(5) | v(6) | v(7) | 22 | 18 | 15 | 12 | 10 | 9 | 8 | Assume that the market price of a cow is Rs 11. Assume that the villagers implement the following rule: Each time a person buys a cow, she must pay Rs t to the village council. Thus, a person incurs a cost of Rs 11 + t for each cow that she buys. For which of the following values of t will the equilibrium number of cows bought and grazed on the field equal the number that maximizes the village's aggregate income? (A) 11 (B) 6 (C) 0 (D) None of the above
Market failure, externalities and public goods has come up 114 times in 7 exams since 2006.
What this question tests
This question is on Common-pool resources and the tragedy of the commons, part of Market failure, externalities and public goods in Microeconomics.
Overuse of resources that anyone can access, and the policies that limit it.
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