Public goods, and costs or benefits that fall on others

Grade 12 Social Studies Worksheet

Circle the best answer.

1. Read this first

   Use this

   Cards A to C on a tax for a cost that falls on others (card A is made up; card B is made up; card C is in our words). Card A, "A market with a cost that falls on others (made up)". Who made it: written for this sheet. Table, columns Units | Price buyers will pay for the last unit ($) | Seller's own cost of the last unit ($) | Cost to everyone, including others ($): 1 | 22 | 6 | 14; 2 | 20 | 8 | 16; 3 | 18 | 10 | 18; 4 | 16 | 12 | 20; 5 | 14 | 14 | 22; 6 | 12 | 16 | 24. Note: each unit of the good puts $8 of cost on people who are not part of the deal. Card B, "A tax of different sizes (made up)". Who made it: written for this sheet. Table, columns Tax per unit ($) | Units sold | Tax collected ($): 0 | 5 | 0; 4 | 4 | 16; 8 | 3 | 24; 10 | 2.5 | 25; 12 | 2 | 24. Card C, "Bargaining (in our words)". Who made it: written for this sheet. Summary in our words, not a quotation: If the people who bear a cost and the people who cause it can bargain at no cost, and the rights are clear, they can reach the best amount whoever holds the rights. Bargaining among many people costs time and money.

2. 1.

   A tax of $8 a unit is placed on sellers. Esme compares the price buyers pay and what sellers keep with the no-tax market. What changes?

   • Buyers pay $8 more, since the tax is added to the price buyers pay
   • Buyers pay $4 more, $18 against $14, and sellers keep $4 less, $10 against $14
   • Sellers pay $4 more, $18 against $14, and buyers keep $4 less
   • Buyers pay $4 more, and sellers keep $8 less, since sellers pay the whole tax
3. 2.

   A student says the best tax is the one that collects the most. Tala tests the claim against cards A and B. What is the verdict?

   • Weak: a $12 tax collects $24, the same as $8, so the tax does not change anything
   • Strong: the best tax collects the most because the money pays for the harm
   • Strong: the $8 tax collects $24, so no larger tax could collect more
   • Weak: a $10 tax collects $25, but cuts output to 2.5, below the best amount of 3
4. 3.

   A reader says a tax is the only way to fix the problem. Zee compares cards A and C. What is the best reply?

   • Wrong: bargaining works for any number of people, so no tax is needed in a market such as this
   • Right: a tax is the sole way, since bargaining does not reach the best amount for a group
   • Right: a tax is needed, since the cost to others is $8 a unit on card A and bargaining fails
   • Not the only way: costless bargaining could reach 3 units, but many people make that costly

5. Use this

   Cards A and B on a benefit that spills over (both made up). Card A, "A market for flu shots (made up)". Who made it: written for this sheet. Table, columns Units | Buyers' value of the last unit ($) | Seller's cost of the last unit ($) | Value to everyone, including others ($): 1 | 27 | 9 | 39; 2 | 24 | 12 | 36; 3 | 21 | 15 | 33; 4 | 18 | 18 | 30; 5 | 15 | 21 | 27; 6 | 12 | 24 | 24; 7 | 9 | 27 | 21; 8 | 6 | 30 | 18. Note: each shot gives $12 of benefit to people who do not buy it. Card B, "A subsidy (made up)". Who made it: written for this sheet. Summary in our words, not a quotation: A subsidy is a payment to sellers for each unit sold. A subsidy of $12 a shot lowers sellers' cost by $12 on each unit.

6. 4.

   Noah reads card A. How many shots does the market give, how many would be best for everyone, and why?

   • The market gives 4 shots; 6 is best, where value to everyone and cost are both $24
   • The market gives 4 shots, and 4 is best, since price equals the seller's cost
   • The market gives 5 shots, and 6 is best, since buyers' value is $15 at 5
   • The market gives 6 shots, and 4 is best, since the value to everyone is $30 at 4
7. 5.

   A $12 subsidy is paid on each shot. Luz follows it on cards A and B. What do buyers pay and sellers get at 6 shots, and what does it cost the government?

   • Buyers pay $24, sellers get $12, and the government pays $72
   • Buyers pay $18, sellers get $24, and the government pays $36
   • Buyers pay $12, sellers get $24, and the government pays $72
   • Buyers pay $12, sellers get $24, and the government pays $144
8. 6.

   A reader says a $20 subsidy is better than $12, since more people get shots. Ren tests it on card A. What is the verdict?

   • Strong: the 7th shot is worth $9 to buyers, which is more than the $7 subsidy cost to sellers
   • Strong: more shots mean more benefit to others, so a larger subsidy is better
   • Weak: a $20 subsidy costs the government $120, which is more than a $12 subsidy
   • Weak: a $20 subsidy gives 7 shots, but the 7th costs $27 and is worth only $21 to everyone
9. 7.

   Bo compares the market (4 shots) with the $12 subsidy (6 shots). Which statement fits card A?

   • The subsidy adds shots 5 and 6, and each gains $12 for others, so the gain is $24
   • The subsidy adds shots 5 and 6, both of which cost less than the buyers' value
   • The subsidy adds shots 5 and 6: the 5th is worth $27 for $21, the 6th $24 for $24
   • The subsidy adds shots that cost more than their total value, so it loses money

10. Use this

    Cards A and B on a street lamp (both made up). Card A, "Five neighbors and a lamp (made up)". Who made it: written for this sheet. Table, columns Neighbor | Value of the lamp ($): V | 50; W | 40; X | 30; Y | 20; Z | 10. The lamp costs $120 to install. Once lit, every neighbor on the street gets its light. Card B, "Two ways to pay (made up)". Who made it: written for this sheet. Summary in our words, not a quotation: Way 1: each neighbor chooses whether to give money, and the lamp is built only if the gifts reach $120. Way 2: the street votes on a plan in which each of the five pays $24, and the lamp is built if most vote yes.

11. 8.

    Milo adds the values on card A and compares them with the lamp's cost. Is the lamp worth building?

    • No: the lamp costs $24 a neighbor, which is more than three neighbors value it
    • No: the lamp costs $120, which is more than the highest value of $50
    • Yes: the lamp is free to light once built, so there is no cost to compare
    • Yes: the values add to $150, which is more than the $120 cost, a net gain of $30
12. 9.

    Kira follows Way 2 on card B, with $24 from each neighbor. Who gains or loses, and what is the total?

    • Each neighbor gains $6, since $150 − $120 is $30 shared among the five
    • V, W and X gain $26, $16 and $6; Y and Z lose $4 and $14; the total gain is $30
    • V, W and X gain $26, $16 and $6; Y and Z lose $4 and $14; the total gain is $48
    • V, W and X lose $26, $16 and $6; Y and Z gain $4 and $14; the total gain is $30
13. 10.

    Ari predicts the vote on Way 2 and compares it with the total value. Which statement is right?

    • It passes 3 to 2, so no neighbor is made worse off by paying the $24 share of the cost
    • It passes 3 to 2: V, W and X gain, Y and Z lose, though the lamp helps the street overall
    • It fails, since a plan that makes a neighbor worse off cannot be a net gain for the street
    • It fails 3 to 2, since the two who lose would block a plan that costs them $24 each