1.    Suppose the market demand for books is: Q_D=100-4P where Q is units purchased per week and P is price per book.  Assume books are a private good with no external benefits or costs.

a.       Fill in the table

Quantity of books (per week)	Private Marginal Benefit	Social Marginal Benefit
10
20
30
40
50

b.       For this good why are the private and social marginal benefits equal? 

c.       Suppose the social marginal cost of producing books is a constant $15.  Calculate the efficient quantity of books transacted per week.

d.       Calculate the total social costs and benefits of producing and consuming books at the efficient level specified in part c.  Calculate the net benefit of the consumption of books to society.

e.       Explain exactly what would be wrong or inefficient if the weekly consumption of books went beyond the quantity in part c.

2.    A prominent senator has calculated that the total social benefit of the Cal State University system equals $240 million per year.  The total social cost of the system is presently approximately $160 million.  The senator argues society would enjoy a net gain if the Cal State system were enlarged - by adding more campuses. The senator maintains the net gain would result by enlarging the system to the point at which total social costs equals total social benefits.

A.      What does the senator mean by total social benefit?  How can you put a dollar value on that?

B.      Give some examples of the opportunity cost of the Cal State system.

C.      Explain what is wrong with the senator’s logic when he says that based on the above cost/benefit figures we should enlarge the Cal State system.