Hello, Could you please help me with below question? Use the table below, which

Question

Hello,

Could you please help me with below question?

Use the table below, which shows the demand for a public good in an economy consisting of two households, A and B, to answer the questions below.

Part A not included in this question.

Part B. What would make you doubt that the table is an accurate reporting of the individual demand curves?

4) When individuals determine how much of a public good to demand, they estimate their marginal private benefit rather than the marginal social benefit. This causes them to understate the value that is received from a public good.

Part C:

If the marginal cost of providing one unit of the public good is $500, the socially optimal amount of the public good is ______

Part D:

Given the free rider problem, your answer to c is most likely an: _____

1) Overestimate

2) Underestimate

  Price ($) 100 200 300 400 500 600 700   Quantity demanded A 50 40 30 20 10 0 0   Quantity demanded B 60 50 40 30 20 10 0

Explanation / Answer

PART - B

Correct option (4).

A public good is always understated in terms of value, since consumers estimate private marginal benefit and not the social benefit.

PART - C

Socially optimal amount is 20 units (highest demand at $500).

PART - D

(2) Underestimate.

The free rider problem underestimates actual demand for public demand.

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