Econ 2, Winter 2013, Week 2

Solutions to Chapter 18 Problems

Facts and Tools
1a)
Excludable:
Apples, Open-Heart Surgery, Cable television, Farm-raised salmon,
Yosemite National Park.
Non-excludable:
Central Park, the Chinese language, The idea of Calculus.
1b)
Rival:
Nonrival:

Apples, Open-Heart Surgery, Farm-raised salmon.

Cable television, Yosemite National Park, Central Park, the Chinese language.

1c)
Private Goods:
Apples, Open-Heart Surgery, Farm-raised salmon.
Nonrival Private Goods: Cable television, Yosemite National Park.
Common resources: Only Central Park during a summer concert (say) might have a chance to
be counted as a common resource, since some individuals use of the park excludes others use
of it.
Public Goods:
Central Park otherwise, The Chinese language, the idea of Calculus.
1d) Consider these two possibilities: first, have a gate at the entrance of the park (as in
Yosemite), second, demand park visitors to carry a previously acquired ticket or badge (this
is similar to what train operators typically do or what you do when you visit certain office
buildings).
5) Bison were driven near extinction because they roamed the Great Plains freely, and so they
were hunted indiscriminately. Excluding conservationists, no individual had an incentive to
prevent the bison from being hunted. The argument for ownership goes as follows: if someone
had had interest in preserving these bison but lacked ownership over any bison, that person
wouldnt have been able to stop others from hunting the bison. In contrast, if such individual had
had ownership of the bison, she could have stopped others from hunting the bison, and/or could
have fostered their reproduction so long as property rights are enforced (similar to what happens
with cows and other farm animals).
6a) Hunters will probably get more accurate rifles and/or better bullets so that less bullets are
needed to get a deer. The idea here is that hunters can partially offset the restrictions by investing
in alternative hunting technologies.
6b) It would restrict each hunter to be able to hunt up to a fixed number of deer.
8) By limiting the fishermen, the quota allowed the fish population to expand. After some years,
the total population of fish had grown enough so that more fishermen could fish. As a result, the
actual total catch increased.

Thinking and Problem Solving

4a) Relabel Up and Down with Dont Conserve (or Dont cooperate) and Conserve (or
Cooperate), respectively. Relabel Left and Right with Dont Conserve (or Dont cooperate) and
Conserve (or Cooperate) too.
4b) Highest joint payoff: (Cooperate, Cooperate)
4c) One fisherman decided not to cooperate(Cooperate/Dont Cooperate) and (Dont
Cooperate/Cooperate) satisfy the situation described.
4d) Nash equilibrium: (Dont Cooperate/ Dont Cooperate)
6a) If no one had ownership over the trees, the planter bore the costs of planting trees. However,
the whole island benefited from the tree planting.
6b) As the demand for trees increased above the natural replenishment rate, the number of trees
decreased because no one had the incentive to plant trees. Everyone had an incentive to harvest
them, though.
6c) He realized that although in the absence of other villagers he might have decided not to
cut it at that moment (save it for later, allow it to generate seeds to plant more trees, etc...), he
knew that if he didnt cut it someone else would have done so. His rational reaction was to cut it
himself for his own benefit.
Challenges
1a) Theyll probably drink it faster than if they were drinking out of one glass. Their lack or
property rights over half of the milkshake gives them incentives to overuse the common resource
in this case (the milkshake).
1b) Presumably, several different companies are drilling the oil field simultaneously. This oil
field constitutes a common resource. Perhaps it would be more efficient to use less drilling
machines, given the size of the drilled area (in the sense that less machines could drill as much as
the current number, due to them getting in each others way in the current scenario). If so, this is
another tragedy of the commons.
c) If you google There will be blood and Albert Fall youll find out that Senator Albert Fall
used the milkshake example during a speech to describe oil drainage.
5a) If you work under the communal system, and you increase your effort, your share of
food does not increase. However the quantity of food you consume does increase , but only a
little: if by working hard you produce 10 more pounds of food and there are 10 villagers, your
consumption only increases by 1 pound.
5b) The harvest is a common resource (of sorts). Food is rival but (sort of) nonexcludable. Its
not perfectly nonexcludable because you are only assigned an equal share of the total harvest,
so in a sense you can be excluded from consuming more than that. However you cannot be
excluded from consuming less than your equal share.

5c) The communal system created a tragedy of the commons. It was in the interest of each
pilgrim to free ride from others work. Consequently, the pilgrims starved. They were trapped in
a low effort equilibrium.
5d) The amount of food produced increased since everyones effort increased.
5e) Beyond reducing the amount of food produced, it reduced the mutual respects that should be
preserved among villagers: it decreased trust.