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Chapter 13: Q.4 (page 315)

The Junkbuyers Company travels from home to home, looking for opportunities to buy items that would otherwise end up with the garbage, but which the company can resell or recycle. Which will be larger, the private or the social benefits?

Short Answer

Expert verified

In this case, the social benefits will be larger than private benefits.

Step by step solution

01

Content Introduction

Only an individual or a business that consumes goods and services receives private advantages. Social benefits, on the other hand, are the sum of private advantages as well as positive externalities generated by such goods and services.

02

Content Explanation

When Junkbuyers Company purchases anything for resale, both the buyer and the seller are likely to benefit from the transaction; otherwise, the deal would not have gone forward. In addition, the company reduces the amount of waste it generates. It also allows homes to save money while also saving the city from having to deal with additional rubbish. As a result, the social advantages outnumber the private benefits.

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Most popular questions from this chapter

Why is a football game on ESPN a quasi-public

good but a game on the NBC, CBS, or ABC is a public good?

Will the demand for borrowing and investing in R&D be higher or lower if there are no external benefits?

HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow HighFlyer Airlines to give passengers more comfort and sell more tickets at a higher price. However, redesigning the cabin means rethinking many other elements of the airplane as well, like engine and luggage placement, and the most efficient shape of the plane for moving through the air. HighFlyer Airlines has developed a list of possible methods to increase cabin space, along with estimates of how these approaches would affect the plane's operating costs and ticket sales. Based on these estimates, Table 13.5 shows the value of R&D projects that provide at least a certain private rate of return. Column 1 = Private Rate of Return. Column 2 = Value of R&D Projects that Return at Least the Private Rate of Return to HighFlyer Airlines. Use the data to answer the following questions.

Private rate of returnValue of R&D
12%\(100
10%\)200
8%\(300
6%\)400
4%$500

a. If the opportunity cost of financial capital for HighFlyer Airlines is 6%, how much should the firm invest in R&D?

b. Assume that the social rate of return for R&D is an additional 2% on top of the private return; that is, an R&D investment that had a 7% private return to HighFlyer Airlines would have a 9% social return. How much investment is socially optimal at the 6% interest rate?

What can government do to encourage the development of new technology?

Provide two examples of goods/services that are classified as private goods/services even though they are provided by a federal government.
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