Question

10 pruuluun *Use the information below to answer Questions 2.25 through 2.30* The homeowners' association for Faraway Villas, a 1,000-home neighborhood, hired a consultant to improve their neighborhood. He reports that a professionally landscaped lawn confers a positive benefit to others in the neighborhood. This positive externality is valued at $8,000 per home. Below is a graph presenting the demand (i.e. private marginal benefit) that homeowner's place on having their own lawn landscaped. The only landscaping company in the area offers their services at a flat rate of $12,000 per home (MC = $12,000). **First, graph and label the SMC curve for landscaping ** Hint: If you've drawn the SMC curve at $8,000, you've a mistake. Landscaping in Faraway Villas 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 1000 200 500 800 Homes 2.25 What is the free market quantity of landscaped homes? a) 200 lawns b) 400 lawns c) 600 lawns d) 800 lawns e) 1,000 lawns

Answer 1

Solution: 2.25. What is the face market quantity of landscaped homes. Hence option "e" "1000 lawns" ics coerect answer. 2.26: What is the optimal quantity of landscaped home in Faraway villas? Hence option at a 400 downs" are corect answer. 2.21. There is any of landscaping occurring in the force market. Hence obtion B "over allocation is correct answer. 2.28: What is the size of underdlocatio/ over allocation? Hence option "d" " 600 lown" is correct answer. 229. The dead weight loss of the under allocation /overallocation 18 Hence option & " $400.000" is correct / от, ең. 2.30. If the home oumer's association wished to colect this market failure what course of action should the consultant suggest a Hence option co to Homeowners association should collect fee focom everyone and subsidize landes cabing service bed $8ooo per lawn.