These results illustrate A. why markets are efficient B. the Tragedy of the Comm

Question

These results illustrate   

A. why markets are efficient

B. the Tragedy of the Commons

C. the free-rifer problem

D. the creation of a postive externality

3. Voluntary contributions toward a public good Carlos and Felix are considering contributing toward the creation of a building mural. Each can choose whether to contribute $300 to the building mural or to keep that $300 for a pool table. Since a building mural is a public good, both Carlos and Felix will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.90 of benefit. For example, if both Carlos and Felix choose to contribute, then a total of $600 would be contributed to the building mural. So, Carlos and Felix would each receive $540 of benefit from the building mural, and their combined benefit would be $1,080. This is shown in the upper left cell of the first table. Since a pool table is a private good, if Carlos chooses to spend $300 on a pool table, Carlos would get $300 of benefit from the pool table and Felix wouldn't receive any benefit from Carlos's choice. If Carlos still spends $300 on a pool table and Felix chooses to contribute $300 to the building mural, Carlos would still receive the $270 of benefit from Felix's generosity. In other words, if Carlos decides to keep the $300 for a pool table and Felix decides to contribute the $300 to the public project, then Carlos would receive a total benefit of $300+$270= $570, Felix would receive a total benefit of $270, and their combined benefit would be $840. This is shown in the lower left cell of the first table. Complete the following table, which shows the combined benefits of Carlos and Felix as previously described. Felix Contributes Doesn't contribute Contributes $1,080 Carlos Doesn't contribute $840 Of the four cells of the table, which gives the greatest combined benefits to Carlos and Felix? When neither Carlos nor Felix contributes to the building mural When Carlos contributes to the building mural and Felix doesn't, or vice versa When both Carlos and Felix contribute to the building mural Suggestions Session Timeout 57:55

Explanation / Answer

Carlos

Answer to blank1: Don't Contribute

Answer to blank2: Don't Contribute

Answer to blank3: Prisoner's dilemma

Answer to blank1: Don't Contribute

Answer to blank2: Don't Contribute

Answer to blank3:D. the creation of a postive externality

Felix

Carlos

Contribute Don't Contribute Contribute $1080 $840 Don't Contribute $840 $600

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