The nation of Wiknam has 5 million residents whose only activities

| November 24, 2016

The nation of Wiknam has 5 million residents whose only activities are producing and consuming fish. They produce fish in two ways. Each person who works on a fish farm raises 2 fish per day. Each person who goes fishing in one of the nation’s many lakes catches fish per day. depends on, the number of residents (in millions) fishing in the lakes. In particular, if million people fish in the lakes, each catches:

Each resident is attracted to the job that pays more fish, so in equilibrium the two jobs must offer equal pay.

The productivity of each person who fishes declines as rises because the fish in the lakes arerival in consumption. Because the fish in the lakes are alsonot excludable, they would be considered acommon resource, while the fish on the farms are aprivate good.

One town’s Freedom Party thinks every individual in Wiknam should have the right to choose between fishing in the lakes and farming, without government interference. Under its policy,million residents would fish in the lakes andmillion would work on fish farms. This means a total number ofmillion fish would be produced.

The same town’s Efficiency Party thinks Wiknam should produce as many fish as it can. To achieve this goal, how many of the residents should fish in the lakes and how many should work on the farms? Complete the following table by indicating the number of fish produced on farms, from lakes, and in total for each value of.

5 0
4 1
3 2
2 3
1 4
0 N/A 5
The greatest number of fish are produced whenmillion fishermen fish in the lakes andmillion fishermen produce fish on the farms.

The Efficiency Party proposes achieving its goal by taxing each person fishing in the lakes by an amount equal to fish per day. It will then distribute the proceeds equally among all Wiknam residents. (Fish are assumed to be divisible, so these rebates need not be whole numbers.) Which of the following values of would yield the outcome you derived in the previous part?

0 fish per day Between 0 and 1 fish per day Between 1 and 2 fish per day Between 2 and 3 fish per day

Compared with the Freedom Party’s hands-off policy, who benefits from the imposition of the Efficiency Party’s fishing tax?

Fishermen at the lakes Fishermen at the farms Everyone No one

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