BEA111 Introduction to Markets and the Economy - Assignment 1 Microeconomics Question 5 - 40 marks (1-3 sentences + calc

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Bea111 Introduction To Markets And The Economy Assignment 1 Microeconomics Question 5 40 Marks 1 3 Sentences Calc 1 (153.6 KiB) Viewed 141 times

BEA111 Introduction to Markets and the Economy - Assignment 1 Microeconomics Question 5 - 40 marks (1-3 sentences + calculations per 5 marks) Consider a rock concert that is to be held at Cornelian Bay Oval in Hobart over 25-26 March 2022. The rock concert is estimated to contribute $300,000 in economic benefits, consisting of $200,000 in consumer surplus to those that attend and $100,000 in producer surplus to the firm organising the concert. However, the concert will also cause excessive noise that will impose a cost of $180 on each of the 500 residents in the area. Assume there are no other external costs or benefits. a. Is socially efficient for the concert to be held? Why? (5 marks) b. If the rock concert had the right to excessive noise, would the concert be held? Explain who would be the "winners" and "losers” in this situation. (5 marks) C. If the locals had the right to no excessive noise, explain what the rock concert could do to get the locals to agree for the concert to be held. Explain why the firm has an incentive to do this and why locals would agree, by examining their net benefits. (10 marks) d. If there were costs involved with any payments of cash or tickets from the rock concert to each local or vice versa of $30, Explain who should be assigned the property rights to achieve the socially efficient outcome. (10 marks) e. Suppose that price of tickets to the concert are $120 (and can be re-sold at that price), but the marginal cost to the firm of each ticket is only $18 and the only transaction cost is a $2 fee the rock concert must pay to deliver the tickets to locals. Explain how the rock concert tickets could be used in Coasean Bargaining to increase the net or social, economic surplus. Explain why this works even if a local doesn't value going to the concert at $120 (10 marks)