Figure 11.2 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 11.2 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights.
-Refer to Figure 11.2.Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other.Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?

Question

Figure 11.2  Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 11.2 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights.
-Refer to Figure 11.2.Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other.Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?

Quizplus · Accepted Answer

Private bargaining is likely to result in the optimal quantity being installed because Amit and Bree both have a strong incentive to reach an agreement that benefits both of them. As long as they can agree on a price that is somewhere between their respective willingness to pay, they will both be better off than if they did not install any street lights. In this case, the optimal quantity would be where their two demand curves intersect.

Figure 112 Amit and Bree Are the Only Two Homeowners