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On the basis of the three individual demand schedules in the following table, and assuming these are the only three people in the society, determine (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good.

P($)QdD1
QdD2
QdD3
8010
7020
6031
5142
4253
3364
2475
1586

Short Answer

Expert verified

a. Market demand schedule for the private good.

Price($)Market Demand for the private good
81
72
64
57
410
313
216
119

b. Collective demand schedule for the public good

Price($)Collective demand for the public good
191
162
133
104
75
46
27
18

Step by step solution

01

Explanation for part ‘a’ 

In the case of a private good, the market demand schedule is calculated by adding the individual demands for the private good at each level of price. For example, At an $8 price, the sum of individual demands (D1, D2, and D3) gives the market demand at the said price; that is, the market demand equals 1 unit of the private good (=0+1+0).

Similarly, the market demand at each price level can be calculated to form the whole schedule as shown below:

P($)QdD1
QdD2
QdD3
Market Demand
(MD=D1+D2+D3
80101(=0+1+0)
70202(=0+2+0)
60314(=0+3+1)
51427(=1+4+2)
425310(=2+5+3)
336413(=3+6+4)
247516(=4+7+5)
158619(=5+8+6)
02

Explanation for part ‘b’

In the case of a public good, the collective demand schedule is calculated by estimating the total worth of a unit of the good for the consumers; that is, by adding up the willingness to pay of different individuals for different quantities of the public good, we get the demand.

For example, using the given table, we will find the prices at which the three consumers are demanding the 1st unit of the good; that is, the 1st consumer demands 1st unit at $5 price, 2nd consumer demands at $8, and 3rd consumer demands at $6. The total price willingness gives the worth of the good, which is equal to $19 (=5+8+6).

Similarly, we can find the worth of the two units and so on, as shown below.

1st consumer鈥檚 willingness to pay($)
2nd consumer鈥檚 willingness to pay($)
3rd consumer鈥檚 willingness to pay($)
Total price willingness ($)
Demand for the public good
58619(=5+8+6)
1
47516(=4+7+5)
2
36413(=3+6+4 )
3
25310(=2+5+3 )
4
1427(=1+4+2)
5
0314(=0+3+1)
6
0202(=0+2+0)
7
0101(=0+1+0)
8

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Most popular questions from this chapter

"The problem with our democratic institutions is that they don't correctly reflect the will of the people! If the people鈥攔ather than self-interested politicians or lobbyists鈥攈ad control, we wouldn't have to worry about the government taking actions that don't maximize allocative and productive efficiency." Critique.

Suppose that total costs (TC) double for each project listed in Table 5.2. Which project(s) is (are) now economically viable?

a. Plan A only

b. Plans C and D only

c. Plans B and C

d. Plans A and B only

Plan
Total cost of project (\()
Marginal cost (\))
Total Benefit
Marginal Benefit
Net Benefit (TB-TC)
No new construction
0-0--
A: Widen existing highways
100-200--
B: New 2-lane highways
280-350--
C: New 4-lane highways
480-470--
D: New 6-lane highways
1240-580--

鈥淢ajority voting ensures that government will produce only those public goods for which benefits exceed costs.鈥 Discuss.

Consider a corrupt provincial government in which each housing inspector examines two newly built structures each week. All the builders in the province are unethical and want to increase their profits by using substandard construction materials, but they can鈥檛 do that unless they can bribe a housing inspector into approving a substandard building.

a. If bribes cost \(1,000 each, how much will a housing inspector make each year in bribes? (Assume that each inspector works 52 weeks a year and gets bribed for every house he or she inspects.)

b. There is a provincial construction supervisor who gets to hire all of the housing inspectors. He himself is corrupt and expects his housing inspectors to share their bribes with him. Suppose that 20 inspectors work for him and that each passes along half the bribes collected from builders. How much will the construction supervisor collect each year?

c. Corrupt officials may have an incentive to reduce the provision of government services to help line their own pockets. Suppose that the provincial construction supervisor decides to cut the total number of housing inspectors from 20 to 10 in order to decrease the supply of new housing permits. This decrease in the supply of permits raises the equilibrium bribe from \)1,000 to \(2,500. How much per year will the construction supervisor now receive if he is still getting half of all the bribes collected by the 10 inspectors? How much more is the construction supervisor getting now than when he had 20 inspectors working in part b? Will he personally be happy with the reduction in government services?

d. What would happen if reducing the number of inspectors from 20 to 10 only increased the equilibrium bribe from \)1,000 to $1,500? In this case, how much per year would the construction supervisor collect from his 10 inspectors? How much less is the construction supervisor getting than when he had 20 inspectors working in part b? In this case, will the construction supervisor be happy with the reduction in government services? Will he want to go back to using 20 inspectors?

Explain: 鈥淧oliticians would make more rational economic decisions if they weren鈥檛 running for re-election every few years.鈥

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