3. Voluntary contributions toward a public good Eileen and Kate are considering contributing toward the creation of a botanical garden. Each can choose whether to contribute $400 to the botanical garden or to keep that $400 for a pool table. Since a botanical garden is a public good, both Eileen and Kate 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 Eileen and Kate choose to contribute, then a total of $800 would be contributed to the botanical garden. So, Eileen and Kate would each receive $640 of benefit from the botanical garden, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table. Since a pool table is a private good, if Eileen chooses to spend $400 on a pool table, Eileen would get $400 of benefit from the pool table and Kate wouldn't receive any benefit from Eileen's choice. If Eileen still spends $400 on a pool table and Kate chooses to contribute $400 to the botanical garden, Eileen would still receive the $320 of benefit from Kate's generosity. In other words, if Eileen decides to keep the $400 for a pool table and Kate decides to contribute the $400 to the public project, then Eileen would receive a total benefit of $400+$320 = $720, Kate 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 Eileen and Kate as previously described. Eileen Contributes Doesn't contribute Kate Contributes Doesn't contribute $1,280 S $1,040 of the four cells of the table, which gives the greatest combined benefits to Eileen and Kate? When neither Eileen nor Kate contributes to the botanical garden When both Eileen and Kate contribute to the botanical garden When Eileen contributes to the botanical garden and Kate doesn't, or vice versa
3. Voluntary contributions toward a public good Eileen and Kate are considering contributing toward the creation of a botanical garden. Each can choose whether to contribute $400 to the botanical garden or to keep that $400 for a pool table. Since a botanical garden is a public good, both Eileen and Kate 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 Eileen and Kate choose to contribute, then a total of $800 would be contributed to the botanical garden. So, Eileen and Kate would each receive $640 of benefit from the botanical garden, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table. Since a pool table is a private good, if Eileen chooses to spend $400 on a pool table, Eileen would get $400 of benefit from the pool table and Kate wouldn't receive any benefit from Eileen's choice. If Eileen still spends $400 on a pool table and Kate chooses to contribute $400 to the botanical garden, Eileen would still receive the $320 of benefit from Kate's generosity. In other words, if Eileen decides to keep the $400 for a pool table and Kate decides to contribute the $400 to the public project, then Eileen would receive a total benefit of $400+$320 = $720, Kate 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 Eileen and Kate as previously described. Eileen Contributes Doesn't contribute Kate Contributes Doesn't contribute $1,280 S $1,040 of the four cells of the table, which gives the greatest combined benefits to Eileen and Kate? When neither Eileen nor Kate contributes to the botanical garden When both Eileen and Kate contribute to the botanical garden When Eileen contributes to the botanical garden and Kate 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
Eileen and Kate are considering contributing toward the creation of a botanical garden. Each can choose whether to contribute $400 to the botanical
garden or to keep that $400 for a pool table.
Since a botanical garden is a public good, both Eileen and Kate 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 Eileen and Kate choose to contribute, then a total of
$800 would be contributed to the botanical garden. So, Eileen and Kate would each receive $640 of benefit from the botanical garden, and their
combined benefit would be $1,280. This is shown in the upper left cell of the first table.
Since a pool table is a private good, if Eileen chooses to spend $400 on a pool table, Eileen would get $400 of benefit from the pool table and Kate
wouldn't receive any benefit from Eileen's choice. Eileen still spends $400 on a pool table and Kate chooses to contribute $400 to the botanical
garden, Eileen would still receive the $320 of benefit from Kate's generosity. In other words, if Eileen decides to keep the $400 for a pool table and
Kate decides to contribute the $400 to the public project, then Eileen would receive a total benefit of $400+ $320 = $720, Kate 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 Eileen and Kate as previously described.
Eileen
Contributes
Doesn't contribute
of the four cells of the table, which gives the greatest combined benefits to Eileen and Kate?
O When neither Eileen nor Kate contributes to the botanical garden
O When both Eileen and Kate contribute to the botanical garden
O When Eileen contributes to the botanical garden and Kate doesn't, or vice versa
Kate
Contributes Doesn't contribute
$1,280 $
$1,040 $
Now, consider the incentive facing Eileen individually. The following table looks similar to the previous one, but this time, it is partially completed with
the individual benefit data for Eileen. As shown previously, if both Eileen and Kate contribute to a public good, Eileen receives a benefit of $640. On
the other hand, if Kate contributes to the botanical garden and Eileen does not, Eileen receives a benefit of $720.
Eileen
Complete the right-hand column of the following table, which shows the individual benefits of Eileen.
Hint: You are not required to consider the benefit of Kate.
Contribute
Doesn't contribute
Contribute
$640,--
$720,--
Kate
Doesn't contribute
$
$
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