Figure 112 Amit and Bree Are the Only Two Homeowners

question 234

Multiple Choice

Figure 11.2 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 11.2 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights.
-Refer to Figure 11.2.Suppose Amit and Bree know each other's preferences so that it is not possible for one to deceive the other.Which of the following statements best describes the circumstances under which the optimal quantity of street lights could be achieved?

• A) The optimal quantity will be installed only if the two parties agree to pay according to their willingness to pay as indicated by their respective demand curves.
• B) Because there are only two consumers, it is likely that private bargaining will result in the optimal quantity being installed.
• C) The optimal quantity will be installed only if the two parties split the cost of installation equally.
• D) The optimal quantity will be installed only if Bree pays for the entire installation cost.

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Definitions:

Year

A period of time consisting of 12 months or 365 days (366 in a leap year), used as a basic unit of time for calendrical purposes.

Trade Surplus

A situation in which a country's exports exceed its imports, leading to a positive balance of trade.

Export

Goods or services sold by a country to another country, contributing positively to the selling country's balance of trade.

C + I + G Curve

An economic model representing the total spending in an economy, comprising Consumption (C), Investment (I), and Government Expenditures (G).