A Village Has Five Residents, Each of Whom Has an Accumulated

question 113

Multiple Choice

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10% interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. $$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Number of goats } \\\text { on the commons }\end{array} & \begin{array} { c } \text { Price per 2-year } \\\text { old goat (\$) }\end{array} & \begin{array} { c } \text { Income per goat } \\\text { (\$/year) }\end{array} \\\hline 1 & 80 & 30 \\\hline 2 & 75 & 25 \\\hline 3 & 70 & 20 \\\hline 4 & 65 & 15 \\\hline 5 & 55 & 5 \\\hline\end{array}$$ When the each villager decides how to invest based on his or her narrow self-interest, total village income will be ______ when the village collectively decides how to invest.

• A)lower than
• B)higher than
• C)the same as
• D)either higher or lower depending on the price of goats

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Definitions:

Policies

Guidelines or rules established by organizations or governments that dictate behaviors or procedures.

Rules

Explicitly stated principles or directives that guide actions and determine acceptable behaviors within a specific context.

Commutative Justice

The degree to which an exchange or a transaction is fair to all parties.

Outcomes

The results or consequences of actions or events, often measured to assess effectiveness or success.