a. On the basis of the three individual demand schedules below, and assuming the

Question

a. On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine the collective demand schedule on the assumption that the good is a public good Instructions: Enter your answers as whole numbers Demand Individual #1 Individual #2 Individual #3 Public Good Price Qd Price Qd Price Qd Price Qd $16 14 12 10 $16 $16 2 12 12 10 10 4 6 2 b. Use the public demand schedule above and the following supply schedule to ascertain the optimal quantity of this public good Quantity Supplied Price $20 18 16 12 10 Optimal quantity

Explanation / Answer

Demand

Public Good

Price

Quantity

14+16+16=46

1

12+14+14=40

2

10+12+12=34

3

8+10+10=28

4

6+8+8=22

5

4+6+6=16

6

2+4+4=10

7

2+2=4

8

Optimal quantity = 6. It is optimal because at 6 units the collective willingness to pay for the final unit of the good (= $16) matches the marginal cost of production (= $16).

Demand

Public Good

Price

Quantity

14+16+16=46

1

12+14+14=40

2

10+12+12=34

3

8+10+10=28

4

6+8+8=22

5

4+6+6=16

6

2+4+4=10

7

2+2=4

8

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