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In the land of Nod, everyone is identical. Each day, 100 people wait in line each day to buy peanuts at a controlled price. One day the government announces that henceforth it will provide a free cup of coffee to each person in line. It costs the government $1 per cup to produce that coffee. The people in line value the coffee at 75 cents per cup. What is the social cost of providing that free coffee? | Great question! To find the social cost of providing free coffee, we need to consider the cost to the government and the value that the people in line place on the coffee. Given:
Step 1: Calculate the total cost to the government for providing the free coffee. Total cost to the government = Number of people in line × Cost per cup of coffee Total cost to the government = 100 × 100 Step 2: Calculate the total value of the coffee to the people in line. Total value to the people = Number of people in line × Value per cup of coffee Total value to the people = 100 × 75 Step 3: Calculate the social cost by subtracting the total value to the people from the total cost to the government. Social cost = Total cost to the government - Total value to the people Social cost = 75 = $25 Therefore, the social cost of providing free coffee to the people in line is $25 per day. |
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"content": "Great question! To find the social cost of providing free coffee, we need to consider the cost to the government and the value that the people in line place on the coffee.\n\nGiven:\n- 100 people wait in line each day to buy peanuts.\n- The government provides a free cup of coffee to each person in line.\n- It costs the government $1 per cup to produce the coffee.\n- The people in line value the coffee at 75 cents per cup.\n\nStep 1: Calculate the total cost to the government for providing the free coffee.\nTotal cost to the government = Number of people in line × Cost per cup of coffee\nTotal cost to the government = 100 × $1 = $100\n\nStep 2: Calculate the total value of the coffee to the people in line.\nTotal value to the people = Number of people in line × Value per cup of coffee\nTotal value to the people = 100 × $0.75 = $75\n\nStep 3: Calculate the social cost by subtracting the total value to the people from the total cost to the government.\nSocial cost = Total cost to the government - Total value to the people\nSocial cost = $100 - $75 = $25\n\nTherefore, the social cost of providing free coffee to the people in line is $25 per day."
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