Homework #3, Econ 306, Prof. Hanson.

1. There are 21 students in a class. One of them, John Smith, would benefit $50 if the time of the class were made ten minutes earlier. Of the twenty other students, five would benefit $2 by this change and fifteen would lose $2.

a. Would placing this issue up for a vote lead to an economically efficient outcome?

b. Is there a set of transfers that would, together with changing the class time, lead to a Pareto improvement?

c. Assume we can not distinguish the people who gain $2 from the people who lose $2. In this case is there a set of transfers that would, together with changing the class time, lead to a Pareto improvement?

d. Which of these answers change if John only benefits by $30 from the time change?

2. A clothing factor is downwind from a copper plant that emits particles into the air. These particles cause $100,000 damage per year to the clothes manufacturer. The copper plant could eliminate this pollution by installing a better air scrubber at a cost of $50,000 per year. Is there a way to fix this inefficiency, other than via government intervention?