Use the table below, which shows the demand for a public good in an economy consisting of two...

Question

Use the table below, which shows the demand for a public good in an economy consisting of two households, A and B, to answer a to d below.

a. Graph the individual demand curves and the market demand curve.

b. What would make you doubt that the table is an accurate reporting of the individual demand curves? c. If the marginal cost of providing one unit of the good is $2.00, what is the socially optimal amount of the public good?

d. Given the free rider problem, is your answer to c most likely an underestimate or an overestimate?

David · Accepted Answer

(b) The feature of the individual demand curves that raises the first doubt is the range of 
quantity demanded of the given good. While the range of quantity demanded by household A 
is 0-12 units over the price range 0 – 3 dollars, the same for household B is only 0-4 units. It 
clearly indicates toward a peculiar of the good under question. The good is evidently 
characterised with ‘non-rivalry’ in consumption, as well as with ‘non-exclusivity’ ;

Use the table below, which shows the demand for a public good in an economy consisting of two households, A and B, to answer a to d below. a. Graph the individual demand curves and the market demand...

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