(Figure: Traffic Lights in Plymouth) Plymouth has 1,000 residents. The figure Tr
ID: 1203706 • Letter: #
Question
(Figure: Traffic Lights in Plymouth) Plymouth has 1,000 residents. The figure Traffic Lights in Plymouth shows the marginal social benefit and marginal cost of traffic lights in town. We know that each of the residents has the same individual marginal benefit per traffic light. Without government intervention, the town will have ________ traffic lights.
(Figure: Traffic Lights in Plymouth) Plymouth has 1,000 residents. The figure Traffic Lights in Plymouth shows the marginal social benefit and marginal cost of traffic lights in town. We know that each of the residents has the same individual marginal benefit per traffic light. If the government provides traffic lights, the socially efficient quantity is:
Figure: Traffic Lights in Plymouth Marginal benefit, marginal cost $12,000 10,000 8,000 6,000 4,000 2,000 MC MSB 0 2 4 6 8 10 12 Number of traffic lightsExplanation / Answer
Without government intervention, the town will have zero traffic lights.
Reason: With out any government intervention, the town will have quantity of trafic lights at the point of maximum positive difference between marginal social benefit and marginal cost. This is maximum at quantitiy being equal to zero.
If the government provides traffic lights, the socially efficient quantity is eight (8).
If the government intervenes and provides traffic lights, the social efficient quantity will be at the point where social marginal benefit equals marginal cost. Such a condition is achieved at quantity being equal to eight.
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