Question

Residents of your city are charged a fixed weekly fee of $6 for garbage collection. They are allowed to put out as many cans as they wish. The average household disposes of three cans of garbage per week under this plan. Now suppose that your city changes to a "tag" system. Each can of garbage to be collected must have a tag affixed to it. The tags cost $2 each and are not reusable. What effect do you think the introduction of the tag system will have on the total quantity of garbage collected in your city? Under the "tag" system, the total quantity of garbage collected in the city will .

Answer 1

Answer:

Constant, i.e. it will not change.

Explanation:

Here, we can apply the law of demand which states that, holding every other things constant, the higher the price the lower the quantity demanded, and vice versa.

If the total quantity of garbage disposes by each household is considered as the quantity demanded, we can easily examine the effect of changing from fixed weekly fee of $6 for garbage collection to a variable cost which is tags cost $2 each.

Since the the average household disposes of three cans of garbage per week under the $6 fixed cost plan, a change to a $2 per tag for each can of garbage will still give an average of $6 (i.e. $2 multiply by an average of 3 cans of garbage per week) to dispose an average of three cans of garbage weekly.

Since there seems to be no change in the cost of disposing an average of three cans of garbage weekly, the total quantity of garbage collected in the city will be constant, i.e., it will not change.