A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. $$\begin{array} { | c | c | c | }
\hline \begin{array} { c }
\text { Number af gants } \
\text { an the carmuns }
\end{array} & \begin{array} { c }
\text { Price per 2-year } \
\text { ald poat (5) }
\end{array} & \begin{array} { c }
\text { Incame per } \
\text { gant (\$/year) }
\end{array} \
\hline 1 & 80 & 30 \
\hline 2 & 75 & 25 \
\hline 3 & 70 & 20 \
\hline 4 & 65 & 15 \
\hline 5 & 55 & 5 \
\hline
\end{array}$$
When the each villager decides how to invest based on his or her narrow self-interest, total village income will be ________ when the village collectively decides how to invest.
A)lower than
B)higher than
C)the same as
D)either higher than or lower than depending on the price of the goats

Question

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Number af gants } \
\text { an the carmuns }
\end{array} & \begin{array} { c } 
\text { Price per 2-year } \
\text { ald poat (5) }
\end{array} & \begin{array} { c } 
\text { Incame per } \
\text { gant (\$/year) }
\end{array} \
\hline 1 & 80 & 30 \
\hline 2 & 75 & 25 \
\hline 3 & 70 & 20 \
\hline 4 & 65 & 15 \
\hline 5 & 55 & 5 \
\hline
\end{array}$$  
When the each villager decides how to invest based on his or her narrow self-interest, total village income will be ________ when the village collectively decides how to invest.
A)lower than
B)higher than
C)the same as
D)either higher than or lower than depending on the price of the goats

Quizplus · Accepted Answer

When each villager decides based on narrow self-interest, they will all choose to buy goats due to the higher income potential compared to the bond's fixed 10% interest, despite the diminishing returns as more goats graze the commons. This leads to overgrazing and lower total income compared to a collective decision that could optimize the number of goats for maximum collective income.

A Village Has Five Residents, Each of Whom Has an Accumulated