Table 11-2 Consider a Small Town with Only Three Families, the Greene

question 403

Multiple Choice

Table 11-2
Consider a small town with only three families, the Greene family, the Brown family, and the Black family. The town does not currently have any streetlights so it is very dark at night. The three families are considering putting in streetlights on Main Street and are trying to determine how many lights to install. The table below shows each family's willingness to pay for each streetlight.
-Refer to Table 11-2. Suppose the cost to install each streetlight is $900 and the families have agreed to split the cost of the streetlights equally. If the families vote to determine the number of streetlights to install, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus) , what is the greatest number of streetlights for which the majority of families would vote "yes?"

• A)1 streetlight
• B)2 streetlights
• C)3 streetlights
• D)4 streetlights

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, holding the consumer's utility level constant.

Income Effect

The alteration in the income of a person or the economy, and its effect on the amount of a product or service that is requested.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, causing consumers to substitute away from more expensive goods towards cheaper ones.

Income Effect

The effect of income changes on the amount of a good or service that is demanded by a person or within an economy.