Macroeconomics: Principles, Problems, & Policies
20th Edition
ISBN: 9780077660772
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 5.A, Problem 1AP
Sub part (a):
To determine
The net benefits of the individuals.
Sub part (b):
To determine
The net benefits of the individuals.
Sub part (c):
To determine
The net benefits of the individuals.
Sub part (d):
To determine
The net benefits of the individuals.
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Distribution of Costs
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Figure 6-1. This table illustrates the four possibilities of the distribution of costs and benefits among voters for a
government project.
Distribution of Benefits
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Widespread | Concentrated |
Widespread
Туре
A
Type
B
Concentrated
Type
Type
D
Refer to Figure 6-1. For which type would the government most likely fail to undertake many projects that would be
considered efficient or productive (in other words, do too few of them relative to economic efficiency)?
There are 2 people in a community, A and B. The function of the demand for public goods from each
of these individuals is:
PA = 100 - G
P3 = 140 - G
where P is the maximum price level that each individual is willing to pay for each unit of public good
G. Marginal costs for the production of each unit of public good are constant 120 Tokens.
a. Illustrate in a graphical analysis the function of demand and supply (supply) of this public good.
What is the efficient provision of public goods G? Describe the prerequisites for the efficient
condition (supply) of public goods.
b. Determine the Lindahl price for individual A and individual B.
c. If later, individual C joins the community, with PC = 30 - G. Will Individual C contribute to the
provision of the public goods? Explain.
Consider a non-rival and non-excludeable public good. The government decides whether or not to provide the good based upon a majority vote. If the good is provided all citizens pay an equal share of the cost. Evaluate the following two statements.
(i) The good WILL NOT be provided if it is NOT efficient to do so.
(ii) The good will be provided if it is efficient to do so.
a.
Both (i) and (ii) are always true.
b.
Neither (i) nor (ii) is always true.
c.
Only (ii) is always true.
d.
Only (i) is always true.
Chapter 5 Solutions
Macroeconomics: Principles, Problems, & Policies
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