Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. The public is willing to pay $14 for the _____ acre of parkland.

Question

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below.    The public is willing to pay $14 for the _____ acre of parkland.

Quizplus · Accepted Answer

$14 is at the intersection point of the aggregate demand curve of the three residents, which occurs at 6 acres of parkland. At this point, the willingness to pay of each resident is equal to $14. Any additional acre of parkland would generate consumer surplus for the residents because the price they pay (which is $0 in the case of a public park) is lower than their willingness to pay. However, the total benefit for the town would diminish as the cost of maintaining the park increases. Therefore, 6 acres of parkland seems to be the optimal choice.

Consider a Town with Three Residents