Question

A city is considering hiring additional police dedicated to detecting a particular crime. This change would increase the fraction of offenders who get caught from 10% to 15%. Suppose this increase in detection would result in a decrease in the number of crimes committed from 500 per year to 300 per year. The social cost of each crime is $15,000. The cost of trial and punishment for each criminal is $70,000.

a. From an efficiency point of view, what is the most that the city should be willing to pay for the new police? Is it efficient to hire the police?

b. Is the supply of crimes elastic or inelastic? Explain.

Answer 1