Answer the next question on the basis of the following information is for public good.P_a and P_b represent the prices that citizens (a) and (b), the only two people in this nation, are willing to pay for additional units of a quantity (Q_c) of the public good.Q_s represents the quantity of the public good supplied by government at each of the collective prices.Refer to the information below.If the collective willingness to pay for an additional unit of this public good is $6, then the collective quantity demanded will be: A)1 unit and the socially optimal quantity supplied will be 5 units. B)2 units and the socially optimal quantity supplied will be 4 units. C)3 units and the socially optimal quantity supplied will be 3 units. D)4 units and the socially optimal quantity supplied will be 2 units.

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Quizplus · Accepted Answer

According to the information given, P_a and P_b represent the prices that citizens (a) and (b) are willing to pay for additional units of the public good, and Q_s represents the quantity of the public good supplied by the government at each of the collective prices. If the collective willingness to pay for an additional unit of the public good is $6, we need to find the point where the marginal social benefit (MSB) is equal to $6. In the given data, we can see that at Q_c=3, MSB is equal to $6 (i.e., the sum of P_a and P_b at Q_c=3 is equal to $6). Thus, the collective quantity demanded at a price of $6 will be 3 units, and the socially optimal quantity supplied will also be 3 units (since that is the point where MSB is equal to marginal social cost). Therefore, the correct answer is C.

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