South-Western College Publishing - Economics  
Sewage in Paradise
Subject Externalities
Topic Government and the Economy
Key Words Over-development, congestion, bond issue
News Story

The waters around the Florida Keys are contaminated with human feces. The cause is antiquated sewage lines and septic tanks, which are ill-suited to high water table, porous limestone, and overdevelopment. The effects of swallowing the water can include nausea, diarrhea, and ear and eye infections. Some tourists are leaving when they learn they cannot swim in the ocean. However, many stay because they can still sunbathe on the beach, dive offshore, and frequent the bars in Key West.

The problem has renewed concern that the Keys are over-populated and over-visited. In 1990, Monroe County, which includes the Keys, had a population of 78,000; by 1998, the population had grown to 85,646. In addition, 18,600 visitors visit Key West each day. The road back to the mainland is congested, even mid-week.

The Key West City Commission is asking voters to approve a bond issue to improve sewer lines and the sewage treatment plant.

(Updated December 1, 1999)

1. Draw a diagram with axes showing the number of residents and the price of living in the Keys.
  a) What might be included in the marginal private costs of living in the Keys? Draw the marginal private cost curve on your diagram.
  b) How are the marginal social costs different? Illustrate.
  c) Add the demand curve and show the private equilibrium.
  d) How do you know that there is over-development in the Keys? Explain in terms of your diagram.
2. The Key West City Commission is planning to borrow money to finance improvements in the sewage system.
  a) How will this affect the marginal private cost curve? Illustrate on your diagram.
  b) How will the marginal social cost curve change if the project is successful?
  c) What will happen to the number of residents as a result of such a bond issue? Explain in terms of your diagram.
Source Rick Bragg, "Crowded Florida Keys A Paradise in Trouble," The New York Times, September 28, 1999.

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