Nick, Crystal, and Terese are the only inhabitants of the small island of Brite.
ID: 1220566 • Letter: N
Question
Nick, Crystal, and Terese are the only inhabitants of the small island of Brite. Unfortunately, the island lacks a lighthouse to guide visitors. However, the inhabitants can import a public lighthouse from a neighboring island at a cost of $21,000. Once purchased, nothing could prevent any of the island’s inhabitants from using the lighthouse when traveling to and from the island. The following table shows each individual's benefit from importing the lighthouse.
The total benefit from the lighthouse to Brite is (21400/11700/ 58000) . Therefore, it (is/is not) efficient for Nick, Crystal, and Terese to purchase the lighthouse.
If the community (Nick, Crystal, and Terese, in this case) voted on whether to divide up the cost of the lighthouse into equal shares of $7,000 per person,(one member, 2 members, 3 three members, no members) of the community would vote for this option.
Terese tries unsuccessfully to persuade Crystal and Nick that the island needs a new sports complex. During their discussion, Terese and Crystal get together and introduce a new vote.
The new vote bundles two proposals: the new sports complex and the proposal to divide the cost of the lighthouse into equal shares. Nick still votes no, but Crystal and Terese vote yes due to the agreements they made during their earlier discussion to approve the sports complex and lighthouse proposals simultaneously. This is an example of ( rational ignorance effect, transfer payment, pork-barrel legislation, shortsightedness effect)
Individual Benefit from a Lighthouse Nick $6,000 Crystal $9,700 Terese $5,700Explanation / Answer
(1) Total benefit = Sum of individual benefits = $(6,000 + 9,700 + 5,700) = $21,400
(2) Since total benefit is greater than cost ($21,400 > $21,000), it is efficient to purchase lighthouse.
(3) In case of equal share of $7,000 per person, 1 member will vote (Only Crystal, since her benefit is higher than the cost of $7,000).
(4) This is a rational ignorance effect.
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