2. Consider a simple public good economy with two people and two goods: one public (x) and one private (y). Assume that one unit of public good can be produced with two units of private good. Person 1's utility function is u₁(x,y) = 2x¹2 + y₁ and Person 2's utility function is u₂(x,y) = x2 + y₂. Consider the private good provision mechanism where Person 1 makes a contribution for the public good first, then Person 2 follows. a. b. C. Find the optimal output of the public good by using Samuelson Show that in the private good provision mechanism Person 2 rides Is the private good provision mechanism efficient? Explain. condition. free.

2. Consider a simple public good economy with two people and two goods: one public (x) and one private (y). Assume that one unit of public good can be produced with two units of private good. Person 1's utility function is u₁(x,y) = 2x¹2 + y₁ and Person 2's utility function is u₂(x,y) = x2 + y₂. Consider the private good provision mechanism where Person 1 makes a contribution for the public good first, then Person 2 follows. a. b. C. Find the optimal output of the public good by using Samuelson Show that in the private good provision mechanism Person 2 rides Is the private good provision mechanism efficient? Explain. condition. free.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2.
Consider a simple public good economy with two people and two
goods: one public (x) and one private (y). Assume that one unit of public good
can be produced with two units of private good. Person 1's utility function is
u₁(x,y) = 2x¹2 + y₁ and Person 2's utility function is u2(x,y) = x¹2 + y₂. Consider
the private good provision mechanism where Person 1 makes a contribution for
the public good first, then Person 2 follows.
a.
Find the optimal output of the public good by using Samuelson
condition.
b.
Show that in the private good provision mechanism Person 2 rides
free.
C.
Is the private good provision mechanism efficient? Explain.
N

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