Reference no: EM131135672
Data on two individuals' preferences for a public good are reflected in the table below. PA and PB represent the prices individuals A and B, the only two people in the society, are willing to pay for the last unit of a public good, rather than do without. Quantity PA PB 1 $36 $35 2 30 30 3 24 25 4 18 20 5 12 15 6 6 10
(a) Complet the table below showing the collective willingness to pay for the public good in this society. Qd Price Qs 1" role="presentation" style="box-sizing: border-box; margin: 0px; padding: 0px; border: 0px; outline: 0px; display: inline; font-style: normal; font-weight: normal; line-height: normal; font-size: 14px; text-indent: 0px; text-align: left; text-transform: none; letter-spacing: normal; word-spacing: normal; word-wrap: normal; white-space: nowrap; float: none; direction: ltr; max-width: none; max-height: none; min-width: 0px; min-height: 0px; position: relative;">$ 7 2 6 3 5 4 4 5 3 6 2
(b) Given the supply schedule for this public good as shown by the Qs column, what is the optimal quantity of this public good and what is the optimal price?
(c) What is the perceived marginal benefit and perceived marginal cost when 3 units of the public good are supplied? What does this indicate about the allocation of resources to this public good?
Question 2 In a typical month, a family buys six bags of candy bars as snacks when the price of a bag costs $4.00. When the price of the candy bars falls to $3.00 a bag, the family buys seven bags of candy bars a month. When the price of a bag of candy bars rises to $6.00, the family buys three bags a month.
Answer these questions:
(a) How did the fall in the price affect real income in terms of bags of candy bars?
(b) How did the rise in the price affect real income in terms of bags of candy bars? [Hint: How many bags of candy bars could the family buy in situation (a) and in situation (b) without changing the amount they spend on candy bars in a typical month?]
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