Suppose a new recreational neighborhood park would cost $20,000, including oppor

Question

Suppose a new recreational neighborhood park would cost $20,000, including opportunity costs, to construct and maintain. If built, the park would be a public good. For simplicity, assume the neighborhood park would be used by three families, each of whom would derive a marginal benefit equivalent to $8,000 from the park.

a. If left to the private market, would the park be built? (Hint: There would be no Coasian bargaining or government intervention.)

b. From society’s perspective, should the park be built?

c. Describe a bargaining solution or government intervention which could lead to the park’s construction

Explanation / Answer

A) If left to private market, the park wont be built because no single family will spend $20,000 for a profit of just $8000

B) From the societies perspective, park should be built as it enhances the quality of life of the nearby residents.

C) The government can bring together these three families which will get benefited to form some cooperative society and these families can contibute equally to invest $20,000 for the park, that will give them a benefit a $24000. This benefit they can share.

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