Essentials of Economics 7th Edition by Gregory Mankiw

Exercise 15

The town of Wiknam has 5 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 town lakes catches X fish per day. X depends on N , the number of residents fishing in the lakes. In particular, if N million people fish in the lakes, each catches
X = 6 ? N fish.
Each resident is attracted to the job that pays more fish.
a. Why do you suppose that X , the productivity of each fisherman, falls as N , the number of fishermen, rises? What economic term would you use to describe the fish in the town lakes? Would the same description apply to the fish from the farms? Explain.
b. The town's Freedom Party thinks every individual should have the right to choose between fishing in the lake and farming without government interference. Under its policy, how many of the residents would fish in the lakes and how many would work on fish farms? How many fish are produced?
c. The 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? ( Hint : Create a table that shows the number of fish produced- on farms, from the lake, and in total-for each N from 0 to 5.)
d. The Efficiency Party proposes achieving its goal by taxing each person fishing in the lake by an amount equal to T 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.) Calculate the value of T that would yield the outcome you derived in part (c).
e. Compared with the Freedom Party's hands-off policy, who benefits and who loses from the imposition of the Efficiency Party's fishing tax?