Question 1

Consider an economy with three consumers, each with a marginal benefit for a public good of MB = 10 - q.What is society's marginal benefit (MB_T) for the public good?

Accepted Answer

The society's marginal benefit for a public good is the sum of the individual marginal benefits. Since each of the three consumers has a marginal benefit of MB = 10 - q, the total marginal benefit for society is 3*(10 - q) = 30 - 3q.

Question 2

Consider an economy with two consumers, each with a marginal benefit for a public good of MB = 20 - 1/2q.The marginal cost of providing the good is $10 per unit.How many units are supplied in the private-sector market?

Accepted Answer

In a private-sector market, public goods are often underprovided due to the free-rider problem. Each individual's marginal benefit does not account for the total benefit to society, leading to a situation where no private entity finds it profitable to supply the good at the cost of $10 per unit, resulting in zero units supplied.

Question 3

A public good is:

Accepted Answer

A public good is characterized by being non-excludable and non-rival, meaning that no one can be effectively excluded from its use and one person's use of the good does not reduce its availability to others.

Question 4

Consider an economy with two consumers, each with a marginal benefit for a public good of MB = 20 - 1/2q.If the marginal cost of provision is $30 per unit, what is the efficient level of output?

Accepted Answer

For a public good, the efficient level of output is where the sum of the marginal benefits (SMB) equals the marginal cost (MC). Each consumer has a marginal benefit of MB = 20 - 1/2q, so the sum of their marginal benefits is 2(MB) = 40 - q. Setting this equal to the marginal cost of $30 and solving for q gives: 40 - q = 30, so q = 10.

Question 5

Consider an economy with two consumers, each with a marginal benefit for a public good of MB = 20 - 1/2q.If the marginal cost of provision is $30 per unit, what is DWL in the market outcome?

Accepted Answer

The answer of Consider an economy with two consumers, each...

Question 6

The tragedy of the common arises when:

Accepted Answer

The tragedy of the commons occurs when a resource is rival (one person's use diminishes others' use) but non-excludable (people cannot be prevented from using it), leading to overuse and depletion.

Question 7

An inefficiency can arise in the provision of public good:

Accepted Answer

An inefficiency arises because private firms cannot enforce payment for public goods, leading to under-provision due to the free-rider problem.

Question 8

Consider an economy with three consumers, each with a marginal benefit for a public good of MB = 10 - q.If the marginal cost of providing the good is $0 per unit, what is the DWL arising in the market outcome?

Accepted Answer

The Deadweight Loss (DWL) in this scenario can be calculated by considering the total benefit to the consumers and the cost of providing the public good. Since the marginal cost (MC) of providing the good is $0, the efficient quantity (q*) is where the sum of the marginal benefits (MB) of all consumers equals the MC. Each consumer has an MB = 10 - q, so for three consumers, the total MB = 3(10 - q) = 30 - 3q. Setting this equal to the MC (which is 0) and solving for q gives q = 10. The total benefit at this quantity is the area under the MB curve, which is a triangle with a base and height of 10, so (1/2)*10*10 = 50. However, since there's no cost to provide the good, the entire area under the MB curve represents consumer surplus in the efficient outcome. Without any external intervention, the market might not provide any of the public good due to its non-excludability and non-rivalry nature, leading to a DWL equal to the total potential benefit, which is $150 (since each consumer would get a benefit of 50, and there are three consumers).

Question 9

Consider an economy with three consumers, each with a marginal benefit for a public good of MB = 10 - q.If the marginal cost of providing the good is $15 per unit, what is the efficient level of output?

Accepted Answer

The efficient level of output for a public good is where the sum of marginal benefits equals the marginal cost. Here, each consumer's MB is 10 - q, so total MB is 3(10 - q) = 30 - 3q. Setting this equal to the marginal cost of 15 gives 30 - 3q = 15, solving for q gives q = 5.

Question 10

Consider an economy with two consumers, each with a marginal benefit for a public good of MB = 20 - 1/2q.What is society's marginal benefit (MB_T) for the public good?

Accepted Answer

The society's marginal benefit for a public good is the sum of the individual marginal benefits. Since each consumer has a marginal benefit of MB = 20 - 1/2q, for two consumers, the total marginal benefit is MBS = (20 - 1/2q) + (20 - 1/2q) = 40 - q.

Quiz 17: Public Goods and Common Resources

Consider an economy with three consumers, each with a marginal benefit for a public good of MB = 10 - q.What is society's marginal benefit (MBT) for the public good?