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Figure: Market Failure
-(Figure: Market Failure) Look at the figure Market Failure. Suppose the supply curve represents the marginal cost of providing streetlights in a neighborhood that is composed of two people, Ann and Joe. The demand curve represents the marginal benefit that Ann receives from the streetlights. Suppose that Joe's marginal benefit from the streetlights is a constant amount equal to AC. If Ann is the only person to pay for the streetlights, how many lights will be provided?
A) 0
B) E
C) F
D) G

Question

Use the following to answer questions:
Figure: Market Failure 
-(Figure: Market Failure) Look at the figure Market Failure. Suppose the supply curve represents the marginal cost of providing streetlights in a neighborhood that is composed of two people, Ann and Joe. The demand curve represents the marginal benefit that Ann receives from the streetlights. Suppose that Joe's marginal benefit from the streetlights is a constant amount equal to AC. If Ann is the only person to pay for the streetlights, how many lights will be provided?
A) 0 
B) E 
C) F 
D) G

Quizplus · Accepted Answer

If Ann is the only person to pay for the streetlights, she will only be willing to pay for the number of lights that provide her with a marginal benefit equal to her marginal cost. This occurs at point F, where the demand curve (Ann's marginal benefit) intersects the supply curve (marginal cost).

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