Below are portions of the demand curves of three individuals for air quality in
ID: 1138524 • Letter: B
Question
Below are portions of the demand curves of three individuals for air quality in their neighborhood. Air quality (integer values only) is measured in terms of g/m3 (micrograms of SO2 per cubic meter of air). If the marginal cost of reducing ambient SO2 is $40 per g/m3, what is the socially efficient level of air quality, assuming that “society” in this case consists of just these three people?
Quanity Demanded
Cost of Sulfur removal
wtp dollars/ug/m3
A
B
C
60
1400
1200
1500
50
1300
1100
1400
40
1200
1000
1300
30
1100
900
1200
20
1000
800
1100
10
900
700
1000
0
800
600
900
Quanity Demanded
Cost of Sulfur removal
wtp dollars/ug/m3
A
B
C
60
1400
1200
1500
50
1300
1100
1400
40
1200
1000
1300
30
1100
900
1200
20
1000
800
1100
10
900
700
1000
0
800
600
900
Explanation / Answer
First we find aggregate demand curves for public goods. The horizontal axis measures increasing air quality to the right, i.e., diminishing SO2 in the air. In this case he aggregate demand curve, found by summing vertically the individual marginal willingness-to-pay is.
. Efficiency is reached at 900 µg/m3 .
ug/m3 MWTP 1200 130 1100 100 1000 70 900 40 800 20 700 10 600 0Related Questions
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