1. Consider an economy with 5 identical consumers who each have the demand funct
ID: 2439689 • Letter: 1
Question
1. Consider an economy with 5 identical consumers who each have the demand function below for a public good. The economy's supply schedule is on the right. Individual Demand Market Supply P Q 10 1 P Q 32 1 36 2 40 3 P Q 52 6 56 7 60 8 64 9 68 10 P Q 4 7 4 10 48 5 a) Find the Pareto Optimal quantity of the good. (1 point) b) Assume people are surveyed, asked to reveal their demand curve and told they will pay their stated price for the good. How much of the good gets produced if 4 people tell the truth, but one person lies and says they do not care for the good. Explain why the liar benefits from this scheme. What if everyone follows this scheme? (1 point) c) Would it help solve the free-rider problem if the provider of the public good knew the consumers had identical preferences? By this, I do not mean the provider knows what the preferences are, just that everyone is the same. Explain. (1 point)Explanation / Answer
= Market Supply Individual Demand
= (32*1+36*2+40*3+44*4+48*5 ) - (10*1+9*2+8*3+7*4+6*5)
MRSx,y= Px/ Py
= 40/5
= 8
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