Author Question: A student wrote: A subsidy raises marginal social benefit above marginal social cost and eliminates ... (Read 81 times)

ashley · **on:** Jun 29, 2018

A student wrote: A subsidy raises marginal social benefit above marginal social cost and eliminates the deadweight loss from underproduction. If you were the instructor, how would you correct this statement?

What will be an ideal response?

Question 2

The Roomba 570 is a robotic vacuum cleaner made and sold by iRobot. It can vacuum 4 rooms on a single battery charge and it costs 2 worth of electricity to charge the Roomba.

Lynn is a house cleaner and can vacuum 4 rooms in 1 hour with a traditional vacuum. Suppose you want the 4 rooms in your house vacuumed once a week for one year. Ignoring the cost of any electricity Lynn uses, which method is economically efficient if Lynn charges 20 per hour? 30 per hour? A) Roomba if Lynn charges 20 per hour and Lynn if she charges 30 per hour
B) Lynn if she charges 20 or 30 per hour
C) Roomba if Lynn charges 20 or 30 per hour
D) Lynn if she charges 20 per hour and Roomba if Lynn charges 30 per hour

sierrahalpin · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The student errs in several important respects. Here is a corrected statement: A subsidy raises marginal social benefit cost above marginal social cost benefit and eliminates the creates a deadweight loss from underproduction overproduction.

Answer to Question 2

D