Author Question: When a man invests in controlling weeds and trash that tend to accumulate in his yard, both he and ... (Read 79 times)

jerry coleman · **on:** Jul 1, 2018

When a man invests in controlling weeds and trash that tend to accumulate in his yard, both he and his neighbors benefit from his action.

Is an externality associated with his private decision? If so, explain its effect, and determine whether the efficient level of weed control occurs when the individual invests in weed control.

Question 2

Electric power utility companies use various fuel sources (e.g., coal, natural gas, nuclear) to generate electricity for their customers.

What happens to the demand for natural gas used to generate electricity as we move from a short-run planning horizon to a long-run planning horizon? Why? A) Demand becomes more inelastic over time because the other fuel sources become more scarce, so there are fewer options available for electric power utilities in the long run.
B) Demand becomes more inelastic over time because all of the power generation plants tend to choose the same technology, which makes the industry less responsive to prices in the long run.
C) Demand becomes more elastic over time because the electric plant's technology becomes obsolete, and the power company has less flexibility to adjust to changes.
D) Demand becomes more elastic over time because the power companies have more options available and can adopt new generating technologies or substitutes for natural gas over the long run.

Carissamariew · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

When a man invests in weed and trash control and his neighbors benefit, but do not contribute to the effort, then too little investment will be made. The level of investment (weed and trash control) will be determined where his demand (marginal private benefit curve) intersects his marginal cost of control curve. Call this level of control q1. Since others benefit, there is a positive externality which means that the efficient level of weed and trash control q2 is above the actual level.

Answer to Question 2

D