Suppose that Steve and Susie each perceive $200 of marginal beneﬁt from a proposed new park, whereas Elizabeth perceives $800. If the proposed tax levied on each for the park would be $300, a majority vote will
A) defeat this project and resources will be underallocated to it.
B) defeat this project and resources will be eﬃciently allocated.
C) pass this project and resources will be underallocated to it.
D) pass this project and resources will be overallocated to it.

Question

Quizplus · Accepted Answer

The total marginal benefit of the park is $1200 ($200 each for Steve and Susie and $800 for Elizabeth). However, the cost to each individual is $300, which is greater than the marginal benefit they each receive. Therefore, Steve and Susie will vote against the proposal, resulting in a minority vote. The majority vote will not be achieved and the project will be defeated. This allocation of resources is considered under allocation because the total marginal benefit of the project is greater than its cost, but it cannot be carried out due to individual preferences.

Suppose That Steve and Susie Each Perceive $200 of Marginal