[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

PROBLEMS
1. Imagine that many businesses are located beside a
river, into which they discharge industrial waste. There
is a city downstream, which uses the river as a water
supply and for recreation. If property rights to the river
are ill-defined, what problems may occur?
2. Suppose an underground reservoir of oil may reside
under properties owned by several different individuals.
As each well is drilled, it reduces the amount of oil that
others can take out. Compare how quickly the oil is
likely to be extracted in this situation with how quickly
it would be extracted if one person owned the property
rights to drill for the entire pool of oil.
3. In some states, hunting licenses are allocated by lottery;
if you want a license, you send in your name to enter the
lottery. If the purpose of the system is to ensure that
those who want to hunt the most get a chance to do so,
what are the flaws of this system? How would the situation
improve if people who won licenses were allowed to
sell them to others?
4. Imagine that during time of war, the government imposes
coupon rationing. What are the advantages of
allowing people to buy and sell their coupons? What
are the disadvantages?
5. Kathy, a college student, has $20 a week to spend;
she spends it either on junk food at $2.50 a snack,
or on gasoline at $2 per gallon. Draw Kathy’s opportunity
set. What is the trade-off between junk food and
gasoline? Now draw each new budget constraint she
would face if
(a) a kind relative started sending her an additional $10
per week;
(b) the price of a junk food snack fell to $2;
(c) the price of gasoline rose to $2.50 per gallon.
In each case, how does the trade-off between junk food
and gasoline change?
6. Why is the opportunity cost of going to medical school
likely to be greater than the opportunity cost of going to
college? Why is the opportunity cost of a woman with a
college education having a child greater than the opportunity
cost of a woman with just a high school education
having a child?
7. Bob likes to divide his recreational time between going
to movies and listening to compact discs. He has 20
hours a week available for recreation; a movie takes two
hours, and a CD takes one hour to listen to. Draw his
“time-budget constraint” line. Bob also has a limited
amount of income to spend on recreation. He has $60 a
week to spend on recreational activities; a movie costs
$10, and a CD costs $15. (He never likes to listen to the
same CD twice.) Draw his budget constraint line. What
is his opportunity set?
46 ∂ CHAPTER 2 THINKING LIKE AN ECONOMIST