Economics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 20

Suppose certain fireworks are legal in a residential area on the Fourth of July. The fireworks have been approved for safety, but they do cause noise pollution so their use must be limited. Jenny and Salo like to purchase fireworks for their families; Table 18P-1 shows the net marginal benefit that Jenny and Salo gain from each firework they purchase.
a. If a quota of 30 fireworks per person is imposed, what is the marginal benefit of the last firework for each?
b. What is the amount of tax that will achieve the same total number of fireworks to be purchased between Jenny and Salo? How many fireworks will each purchase under this tax?
c. Under a tax, what is the net marginal benefit of the last firework for each after the tax is subtracted?