Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 4, Problem 4RQ
To determine
The production possibility frontier with public and private goods.
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3. Voluntary contributions toward a public goodLarry and Raphael are considering contributing toward the creation of a public park. Each can choose whether to contribute $400 to the public park or to keep that $400 for a new suit.Since a public park is a public good, both Larry and Raphael will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.80 of benefit. For example, if both Larry and Raphael choose to contribute, then a total of $800 would be contributed to the public park. So, Larry and Raphael would each receive $640 of benefit from the public park, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table.Since a new suit is a private good, if Larry chooses to spend $400 on a new suit, Larry would get $400 of benefit from the new suit and Raphael wouldn't receive any benefit from Larry's choice. If Larry still spends $400 on a new suit and…
3. Voluntary contributions toward a public good
Eleanor and Kyoko are considering contributing toward the creation of a public park. Each can choose whether to contribute $400 to the public park or
to keep that $400 for a cell phone.
Since a public park is a public good, both Eleanor and Kyoko will benefit from any contributions made by the other person. Specifically, every dollar
that either one of them contributes will bring each of them $0.80 of benefit. For example, if both Eleanor and Kyoko choose to contribute, then a total
of $800 would be contributed to the public park. So, Eleanor and Kyoko would each receive $640 of benefit from the public park, and their combined
benefit would be $1,280. This is shown in the upper left cell of the first table.
Since a cell phone is a private good, if Eleanor chooses to spend $400 on a cell phone, Eleanor would get $400 of benefit from the cell phone and
Kyoko wouldn't receive any benefit from Eleanor's choice. If Eleanor still spends $400 on…
3. Suppose the production possibility frontier for an economy that produces one public
good (y) and one private good (x) is given by
x*+100y =5,000
This economy is populated by 100 identical individuals, each with a utility function of
the form
Utility = (x,y)2
where x,is the individual's share of private good production (=x/100). Notice that the public
good is nonexclusive and that everyone benefits equally from its level of production.
a. If the market for x and y were perfectly competitive, what levels of those goods
would be produced? What would the typical individual's utility be in this situation?
b. What are the optimal production levels for x and y? What would the typical
individual's utility level be? (Hint: The numbers in this problem do not come out
evenly, and some approximations should suffice.)
Chapter 4 Solutions
Economics (Irwin Economics)
Ch. 4.A - Prob. 1ADQCh. 4.A - Prob. 2ADQCh. 4.A - Prob. 3ADQCh. 4.A - Prob. 1ARQCh. 4.A - Prob. 2ARQCh. 4.A - Prob. 3ARQCh. 4.A - Prob. 1APCh. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - Prob. 3DQ
Ch. 4 - Prob. 4DQCh. 4 - Prob. 5DQCh. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7P
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