3. Voluntary contributions toward a public good Clancy and Hubert are considering contributing toward the creation of a water fountain. Each can choose whether to contribute $400 to the water fountain or to keep that $400 for a cell phone. Since a water fountain is a public good, both Clancy and Hubert 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 Clancy and Hubert choose to contribute, then a total of $800 would be contributed to the water fountain. So, Clancy and Hubert would each receive $640 of benefit from the water fountain, 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 Clancy chooses to spend $400 on a cell phone, Clancy would get $400 of benefit from the cell phone and Hubert wouldn't receive any benefit from Clancy's choice. If Clancy still spends $400 on a cell phone and Hubert chooses to contribute $400 to the water fountain, Clancy would still receive the $320 of benefit from Hubert's generosity. In other words, if Clancy decides to keep the $400 for a cell phone and Hubert decides to contribute the $400 to the public project, then Clancy would receive a total benefit of $400 + $320 = $720, Hubert would receive a total benefit of $320, and their combined benefit would be $1,040. This is shown in the lower left cell of the first table. Complete the following table, which shows the combined benefits of Clancy and Hubert as previously described. Clancy Contributes Doesn't contribute Hubert Contributes Doesn't contribute $1,280 $ $ $1,040 Of the four cells of the table, which gives the greatest combined benefits to Clancy and Hubert? When neither Clancy nor Hubert contributes to the water fountain When both Clancy and Hubert contribute to the water fountain O When Clancy contributes to the water fountain and Hubert doesn't, or vice versa
3. Voluntary contributions toward a public good Clancy and Hubert are considering contributing toward the creation of a water fountain. Each can choose whether to contribute $400 to the water fountain or to keep that $400 for a cell phone. Since a water fountain is a public good, both Clancy and Hubert 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 Clancy and Hubert choose to contribute, then a total of $800 would be contributed to the water fountain. So, Clancy and Hubert would each receive $640 of benefit from the water fountain, 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 Clancy chooses to spend $400 on a cell phone, Clancy would get $400 of benefit from the cell phone and Hubert wouldn't receive any benefit from Clancy's choice. If Clancy still spends $400 on a cell phone and Hubert chooses to contribute $400 to the water fountain, Clancy would still receive the $320 of benefit from Hubert's generosity. In other words, if Clancy decides to keep the $400 for a cell phone and Hubert decides to contribute the $400 to the public project, then Clancy would receive a total benefit of $400 + $320 = $720, Hubert would receive a total benefit of $320, and their combined benefit would be $1,040. This is shown in the lower left cell of the first table. Complete the following table, which shows the combined benefits of Clancy and Hubert as previously described. Clancy Contributes Doesn't contribute Hubert Contributes Doesn't contribute $1,280 $ $ $1,040 Of the four cells of the table, which gives the greatest combined benefits to Clancy and Hubert? When neither Clancy nor Hubert contributes to the water fountain When both Clancy and Hubert contribute to the water fountain O When Clancy contributes to the water fountain and Hubert doesn't, or vice versa
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. Voluntary contributions toward a public good
Clancy and Hubert are considering contributing toward the creation of a water fountain. Each can choose whether to contribute $400 to the water
fountain or to keep that $400 for a cell phone.
Since a water fountain is a public good, both Clancy and Hubert 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 Clancy and Hubert choose to contribute, then a total
of $800 would be contributed to the water fountain. So, Clancy and Hubert would each receive $640 of benefit from the water fountain, 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 Clancy chooses to spend $400 on a cell phone, Clancy would get $400 of benefit from the cell phone and Hubert
wouldn't receive any benefit from Clancy's choice. If Clancy still spends $400 on a cell phone and Hubert chooses to contribute $400 to the water
fountain, Clancy would still receive the $320 of benefit from Hubert's generosity. In other words, if Clancy decides to keep the $400 for a cell phone
and Hubert decides to contribute the $400 to the public project, then Clancy would receive a total benefit of $400 + $320 = $720, Hubert would
receive a total benefit of $320, and their combined benefit would be $1,040. This is shown in the lower left cell of the first table.
Complete the following table, which shows the combined benefits of Clancy and Hubert as previously described.
Clancy
Contributes
Doesn't contribute
Hubert
Contributes Doesn't contribute
$1,280
$
$1,040
$
Of the four cells of the table, which gives the greatest combined benefits to Clancy and Hubert?
O When neither Clancy nor Hubert contributes to the water fountain
When both Clancy and Hubert contribute to the water fountain
O When Clancy contributes to the water fountain and Hubert doesn't, or vice versa
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