Use the table below, which shows the demand for a public good in an economy cons

Question

Use the table below, which shows the demand for a public good in an economy consisting of two households, A and B, to answer the questions below.

b. What would make you doubt that the table is an accurate reporting of the individual demand curves?

c. If the marginal cost of providing one unit of the public good is $4, the socially optimal amount of the public good is ____________ .

d. Given the free rider problem, your answer to c is most likely an (Overstatement, Understatement) Pick one.

  Price ($) 4 6 8 10 12 14 16   Quantity demanded A 12 10 8 6 4 2 0   Quantity demanded B 4 3 2 1 0 0 0

Explanation / Answer

b) The correct choice is C

Explanation : - A public good is a commodity or service that is provided without profit to all members of a society, either by the government or by a private individual or organization. Hence there is no good reason why household A would demand so much more of a public good than household B.

C) The socially optimal amount of the public good is 16 units.

d) Overstatement .

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