I am now strugglingwith the following question: In each of thew following situat

Question

I am now strugglingwith the following question: In each of thew following situations, explain how governmentintervention could improve society's welfare by changing people'sincentives. In what sense is the market going wrong? a. Pollution from auto emissions has reachedunhealthy levels. b. Everyone in Woodville would be better offif streetlights were installed in the town. But no individualresident is willing to pay for installation of a streetlight infront of his or her house because it is impossible to recoup thecost by charging other residents for the benefit they receive fromit. I am now strugglingwith the following question: In each of thew following situations, explain how governmentintervention could improve society's welfare by changing people'sincentives. In what sense is the market going wrong? a. Pollution from auto emissions has reachedunhealthy levels. b. Everyone in Woodville would be better offif streetlights were installed in the town. But no individualresident is willing to pay for installation of a streetlight infront of his or her house because it is impossible to recoup thecost by charging other residents for the benefit they receive fromit. In each of thew following situations, explain how governmentintervention could improve society's welfare by changing people'sincentives. In what sense is the market going wrong? a. Pollution from auto emissions has reachedunhealthy levels. b. Everyone in Woodville would be better offif streetlights were installed in the town. But no individualresident is willing to pay for installation of a streetlight infront of his or her house because it is impossible to recoup thecost by charging other residents for the benefit they receive fromit.

Explanation / Answer

b. The government could charge an equalamount from every resident in order to install streetlights. Themarket is not able to organize this properly because the benefitsfrom the installation of streetlights are subject to free-riding,i.e., people that didn't pay for the service could benefit from it(e.g. if someone didn't install streetlights in his/her own streetbut drives a car through a street in which a resident haveinstalled streetlights).

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