Suppose You and I Are Identical

question 4

Essay

Suppose you and I are identical.We put up fireworks in our adjacent backyards on a national holiday, and we can both enjoy each other's fireworks.
a.Can you identify an externality?
b.Can you identify any missing markets?
c.Do you think we will provide more or less than the efficient number of fireworks?
d.If we could vote on a tax to be imposed on us fund fireworks in our back yards, would we vote for a lump sum tax (imposed equally on both of us) that will cause more fireworks to be put up than what we would put up on our own?
e.Suppose instead the government implements a Pigouvian subsidy.How would the number of fireworks compare to what would happen in (d)? How much of a subsidy would you think we would both get for every dollar of fireworks each of us individually buys?

---

Definitions:

Perpetual System

An inventory system that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.

Replacement Cost

The current cost of replacing an asset with a new one of similar kind and quality.

Ending Inventory

The final valuation of goods available for sale at the conclusion of a reporting period, calculated using beginning inventory plus purchases minus cost of goods sold.

Lower Of Cost

A principle that requires inventory to be recorded at the lower of its historical cost or the market value.