buy a grazing on the commons That in turn depends on the ani

buy a grazing on the commons. That in turn depends on the animars access to grazing, which depends on the number of llamas sent to the commons, as shown in the following table: on the c. The vilage

Solution

The tragedy of commons refers to a fact that use of common resource by the individual decreases the benefit for all using the resource by deplating it. The good which is non-excludable but rival is called common resource. . If it is not possible to stop anyone from consuming a good, the good is non-excludable. If the consumption of a good by one consumer affects the consumption of the same good by other, the good is called rival.

The table below gives the income of the villagers for each llama:

The total amount of income is calculated as follows: If 1st villagers wants to buy the llama, his income will be (125-100)=25. All other vvillagers will buy bond and will earn $15 return after 1 year. Then in total the collective income is ($25+5*15 )=100. Now as 2nd person decides to buy the animal each animal owners income falls to $19 with total income
$98.

a)

If the villegers took decision individually, they will compare the income from llama and bond income. Then after the 3rd person buys a llama , the 4th one will see that buying llama will ensure a income of $`13 which is less than bond income. Hence

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b)

The social optimum occurs where the collective income is highest. This occurs at number of llama is 1. Therefore,

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c)

If the village committee gives the right to highest bidder, the right will be auctioned as $10. Because, the highest bidder will borrow $100, pay interest $15 plus auction fee of $10. earn from llama $125. Thus have the income of $0. The total income will be $98.

Number of llamas	Price	Income	Total llama income	Income from bond	Total Income
1	125	25	25	75	100
2	119	19	38	60	98
3	116	16	48	45	93
4	113	13	52	30	82
5	111	11	55	15	70
6	109	9	54	0	54