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Chapter 5: Q2. (page 114)

Use your demand schedule for the public good, determined in problem 1, and the following supply schedule to ascertain the optimal quantity of this public good.

Price (\()
Qd
191
162
133
104
75
46
27
18
Price (\))Qs
1910
168
136
104
72
41
2-
1-

Short Answer

Expert verified

The optimal quantity of the public good is four units.

Step by step solution

01

Meaning of optimal quantity of the public good

The point where the collective demand for the public good is equal to the supply of a public good gives the equilibrium state. At this point, there is no excess demand or excess supply. The market is balanced with no wastage of resources and maximum surplus possible.

The price at which this happens is the equilibrium price. This is the price where the collective willingness to pay matches the marginal cost of producing the final unit. The corresponding quantity level becomes the optimal level of production.

02

Explanation for the answer

Combining the collective demand and supply schedules as shared below, we can see that at four units of public good, the collective willingness to pay ($10) matches the cost of producing the additional final unit ($10). Hence the optimal quantity is four units.

Price($)QdQs
19110
1628
1336
1044
752
461
27-
18-

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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.

What are the two characteristics of public goods? Explain the significance of each for public provision as opposed to private provision. What is the free-rider problem as it relates to public goods? Is US border patrol a public good or a private good? Why? What type of good is a satellite TV? Explain.

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

Consider a specific example of the special-interest effect and the collective-action problem. In 2012, it was estimated that the total value of all corn-production subsidies in the United States was about \(3 billion. The population of the United States was approximately 300 million people that year.

a. On average, how much did corn subsidies cost per person in the United States in 2012? (Hint: A billion is a 1 followed by nine zeros. A million is a 1 followed by six zeros.)

b. If each person in the United States is willing to spend only \)0.50 to support efforts to overturn the corn subsidy, and if anti-subsidy advocates can only raise funds from 10 percent of the population, how much money will they be able to raise for their lobbying efforts?

c. If the recipients of corn subsidies donate just 1 percent of the total amount that they receive in subsidies, how much could they raise to support lobbying efforts to continue the corn subsidy?

d. By how many dollars does the amount raised by the recipients of the corn subsidy exceed the amount raised by the opponents of the corn subsidy?

How does the problem of limited and bundled choice in the public sector relate to economic efficiency? Why are public bureaucracies possibly less efficient than business firms?
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