Answer Happy

(12pts.) Open Access Resources. Answer the following
questions regarding the use of this open access fishery using the
table below.
Using the data given in the table, complete column G and
non-shaded part of column H with the appropriate
numbers.
What is the socially optimal number of fishers in this
fishery? Why is this number correct and not any other number in
that table?
A
B
C
D
E
G
H
#
Catch/Benefit per fisher
Total Revenue
Cost per fisher
Total Cost
Net benefit/fisher
Total NB
W/out tax
With tax
W/out tax
With tax
W/out tax
With tax
W/out tax
With tax
1
120
120
90
90
2
120
240
90
180
3
120
360
90
270
4
120
480
90
360
5
100
500
90
450
6
95
570
90
540
7
90
630
90
630
8
85
680
90
720
9
80
720
90
810
10
70
700
90
900
(1pt.) What is the open access number of fishers in this
fishery? Why is this number correct and not any other number in the
table above?
(3pts.) Why is there a divergence between the socially
optimal number of fishers and the open access number of
fishers? (I expect two or three sentences here)
(1pt.) What type of externality defined in class could
be used to describe this situation?
(3pts.) What do you think it would happen to this
fishery if a tax of $12 were to be imposed on each fisherman? Make
sure to briefly support your argument by recalculating the table
above (compute the shaded parts of columns D, E and H). You will
not get full credit without showing numbers.
(4pts.) Instead of using a tax to correct this
externality, a tradable permit system would be implemented (i.e.
Individual Transferable Quotas). Briefly explain how this system
would work and indicate some of its issues as they apply to this
specific context.
(6pts.) The market will generate the socially optimal
outcome
(2pts.) Under what two conditions mentioned in class in
the Market Failure lecture?
(4pts.) Explain the meaning of each
condition.