Each year around July 4 the town of Flagston has a controversy over how big a fireworks display they should have on the holiday. The three citizens have the demand functions for fireworks that are shown here. The cost per firecracker is $18. Elmer has the demand function P = 20 - Q. Ethel's demand equation is P = 12 - .6Q, and Edith has the demand P = 8 - .4Q. If the citizens got together for a city referendum on the issue, and each voted for an amount of fireworks, knowing that each would pay their share (1/3) of the cost, how would the vote come out in a majority rule situation? Why is this not the socially efficient amount?

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The Answer of Each year around July 4 the town of Flagston has a controversy over how big a fireworks display they should have on the holiday. The three citizens have the demand functions for fireworks that are shown here. The cost per firecracker is $18. Elmer has the demand function P = 20 - Q. Ethel's demand equation is P = 12 - .6Q, and Edith has the demand P = 8 - .4Q. If the citizens got together for a city referendum on the issue, and each voted for an amount of fireworks, knowing that each would pay their share (1/3) of the cost, how would the vote come out in a majority rule situation? Why is this not the socially efficient amount?

Each Year Around July 4 the Town of Flagston Has