The Following Table Shows the Quantity Demanded of a Public

question 177

Essay

The following table shows the quantity demanded of a public good at different price levels by John and Elizabeth. $$\begin{array} { r } { \text { Quantity Demanded } } \\\begin{array} { l c c } \text { Price } & \text { John } & \text { Elizabeth } \\0 & 100 & 100 \\0.5 & 90 & 80 \\1 & 80 & 60 \\1.5 & 70 & 40 \\2 & 60 & 20 \\2.5 & 50 & 0 \\3 & 40 & 0 \\3.5 & 30 & 0 \\4 & 20 & 0 \\4.5 & 10 & 0 \\5 & 0 & 0\end{array}\end{array}$$ Answer the following questions:
(1)Draw the demand curve for both John and Elizabeth.
(2)Draw the market demand for this public good.
(3)If the marginal cost of providing one unit of the good is $3 per unit,what is the socially optimal amount of the public good (show this on the same graph)?
(4)In this case,how much will each individual be willing to pay?

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Definitions:

Private Bargaining

The process through which individual parties negotiate terms and conditions exclusively among themselves without the intervention of external regulations.

Efficient Outcome

An optimal allocation of resources that results in the highest possible satisfaction or utility with the least waste or inefficiency.

Externality

A consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices.

Property Rights

Legal rights to use, control, and benefit from a resource.