Scenario: Suppose There Are Only Three Houses on a Street

question 121

Multiple Choice

Scenario: Suppose there are only three houses on a street. The following table shows each homeowner's willingness to pay for street lights. It costs $700 to install a street light.

-Refer to the scenario above.If each homeowners on this street is left to purchase streetlights independently,then Homeowner 1 would purchase ________,Homeowner 2 would purchase ________,and Homeowner 3 would purchase ________ streetlight(s) .

• A) 1; 0; 2
• B) 1; 1; 2
• C) 0; 0; 2
• D) 0; 0; 1

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Definitions:

Pareto Optimal

A state of allocation of resources from which it is impossible to reallocate to make any one individual better off without making at least one individual worse off.

General Equilibrium

General equilibrium refers to a condition in an economy where supply and demand are in balance across all markets, taking into account the interrelations between these markets.

Inefficient

Refers to a situation where resources are not used in the most effective way, leading to wasted potential or output.

Edgeworth Box

Diagram showing all possible allocations of either two goods between two people or of two inputs between two production processes.