2. Suppose we are considering fire hydrants in a small neighborhood. For simplicity, assume that only two individuals live in this neighborhood; Bob and Nancy. Once the fire hydrants are supplied by the city, they are automatically available to both Bob and Nancy. Thus, we can view the fire hydrants as public goods. The table below summarizes Bob and Nancy's individual marginal willingness to pay for fire hydrants. Number of Fire Hydrants 1 2 3 4 5 Bob's MWTP $480 400 320 240 160 Nancy' MWTP $80 60 40 20 0 Suppose that one fire hydrant is provided in the neighborhood. Bob and Nancy are both being charged a municipal tax of $300 each to pay for the hydrant. Would Bob or Nancy (or both) be considered a 'free rider'? Explain your answer.

2. Suppose we are considering fire hydrants in a small neighborhood. For simplicity, assume that only two individuals live in this neighborhood; Bob and Nancy. Once the fire hydrants are supplied by the city, they are automatically available to both Bob and Nancy. Thus, we can view the fire hydrants as public goods. The table below summarizes Bob and Nancy's individual marginal willingness to pay for fire hydrants. Number of Fire Hydrants 1 2 3 4 5 Bob's MWTP $480 400 320 240 160 Nancy' MWTP $80 60 40 20 0 Suppose that one fire hydrant is provided in the neighborhood. Bob and Nancy are both being charged a municipal tax of $300 each to pay for the hydrant. Would Bob or Nancy (or both) be considered a 'free rider'? Explain your answer.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 9PA

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