> Question 2: In a country where everyone is identical, 100 people wait in line each day to buy raspberries at a controlled price. The government has decided to hand out free coffee to the people standing in line. The coffee costs the government $1 per cup, but the people in line value that coffee at only 75 cents per cup. What is the social cost of providing the coffee?
> Grading Remarks: This answer completely misses the key fact that free coffee will cause the line to get longer (in fact it must cause the line to get longer, given the stated assumption that everyone is identical, hence initially indifferent between standing in line and not standing in line). In fact (unless one assumes a very small population), the line must grow until the extra waiting time completely dissipates the value of the free coffee; thus the social cost of providing the coffee is $100.
Wait what? So the line must get longer, *given the stated assumption that everyone is identical*. Well what about the given stated assumption *that 100 people wait in line each day*? One of the stated assumptions can be dropped just like that, while the other is treated like a law of nature? Also where is the logic in "everyone is identical, hence initially indifferent between standing in line and not standing in line"? Am I missing something?
> Question 2: In a country where everyone is identical, 100 people wait in line each day to buy raspberries at a controlled price. The government has decided to hand out free coffee to the people standing in line. The coffee costs the government $1 per cup, but the people in line value that coffee at only 75 cents per cup. What is the social cost of providing the coffee?
> Grading Remarks: This answer completely misses the key fact that free coffee will cause the line to get longer (in fact it must cause the line to get longer, given the stated assumption that everyone is identical, hence initially indifferent between standing in line and not standing in line). In fact (unless one assumes a very small population), the line must grow until the extra waiting time completely dissipates the value of the free coffee; thus the social cost of providing the coffee is $100.
Wait what? So the line must get longer, *given the stated assumption that everyone is identical*. Well what about the given stated assumption *that 100 people wait in line each day*? One of the stated assumptions can be dropped just like that, while the other is treated like a law of nature? Also where is the logic in "everyone is identical, hence initially indifferent between standing in line and not standing in line"? Am I missing something?