question archive 1)A price floor is a legally imposed _____ price
1)A price floor is a legally imposed _____ price
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1)A price floor is a legally imposed _____ price.
A. minimum
B. maximum
C. equilibrium
D. minimum or maximum
2)
Broomfield city council is deciding how many police officers the city needs. Broomfield's population is 10,000 people. The marginal cost of a police officer is $60,000 per year. The marginal benefit schedule of an average city resident from police protection is shown in the table below. Police protection is a public good.
| Number of police officers | Marginal Benefit ($ from the last officer) |
| 1 | $9.00 |
| 2 | 8.10 |
| 3 | 5.30 |
| 4 | 4.50 |
| 5 | 3.70 |
| 6 | 2.00 |
| 7 | 2.10 |
a. The marginal benefit for all of Broomfield from hiring the 5th police officer is $_____,
b. The efficient number of police officers in Broomfield is _____,
c. To support the efficient number of police officers, each resident of Broomfield will have to pay $_____ per year in taxes.
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1)The answer is A. minimum.
- The maximum selling price is a price ceiling, not a price floor. While the minimum selling price can become the equilibrium price, it is not always the case.
2)
Given:
- Police protection provided by police officers is considered as a public good.
- The marginal benefit schedule of an average city resident is given
- The number of people residing in Broomfield is 10,000
- The cost per police officer is $60,000 per year
The table showing the total marginal benefit and marginal social cost is given below.
| Number of police officers | Marginal Benefit ($ from the last officer)(a) | total population(b) | Total marginal benefit accrued to city(a*b) | marginal social cost |
|---|---|---|---|---|
| 1 | $8.00 | 10,000 | $80,000 | $60,000 |
| 2 | $7.20 | 10,000 | $72,000 | $60,000 |
| 3 | $6.40 | 10,000 | $64,000 | $60,000 |
| 4 | $5.60 | 10,000 | $56,000 | $60,000 |
| 5 | $4.80 | 10,000 | $48,000 | $60,000 |
| 6 | $4.00 | 10,000 | $40,000 | $60,000 |
| 7 | $3.20 | 10,000 | $32,000 | $60,000 |
a. The marginal benefit for all of Broomfield from hiring the 5th police officer is $48,000,
b. The efficient number of police officers in Broomfield is 3 because, after this number, the marginal cost is more than the marginal benefit received by society.
c. To support the efficient number of police officers, each resident of Broomfield will have to pay $18 per year in taxes.
Taxperresident=Marginalcostfor3policeofficersBroomfield′spopulationTaxperresident=Marginalcostfor3policeofficersBroomfield′spopulation
Taxperresident=3∗60,00010,000Taxperresident=3∗60,00010,000
Taxperresident=180,00010,000Taxperresident=180,00010,000
Taxperresident=18
