Alyssa and Crystal are considering contributing toward the creation of a building mural. Each can choose whether to contribute $400 to the building mural or to keep that $400 for a new suit. Since a building mural is a public good, both Alyssa and Crystal 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 Alyssa and Crystal choose to contribute, then a total of $800 would be contributed to the building mural. So, Alyssa and Crystal would each receive $640 of benefit from the building mural, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table. Since a new suit is a private good, if Alyssa chooses to spend $400 on a new suit, Alyssa would get $400 of benefit from the new suit and Crystal wouldn't receive any benefit from Alyssa's choice. If Alyssa still spends $400 on a new suit and Crystal chooses to contribute $400 to the building mural, Alyssa would still receive the $320 of benefit from Crystal's generosity. In other words, if Alyssa decides to keep the $400 for a new suit and Crystal decides to contribute the $400 to the public project, then Alyssa would receive a total benefit of $400 + $320 = $720, Crystal 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 Alyssa and Crystal as previously described. Crystal Contributes Doesn't contribute $1,280 $ $1,040 $ Alyssa Contributes Doesn't contribute of the four cells of the table, which gives the greatest combined benefits to Alyssa and Crystal? When both Alyssa and Crystal contribute to the building mural When neither Alyssa nor Crystal contributes to the building mural When Alyssa contributes to the building mural and Crystal doesn't, or vice versa Now, consider the incentive facing Alyssa individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Alyssa. As shown previously, if both Alyssa and Crystal contribute to a public good, Alyssa receives a benefit of $640. On the other hand, if Crystal contributes to the building mural and Alyssa does not, Alyssa receives a benefit of $720.
Alyssa and Crystal are considering contributing toward the creation of a building mural. Each can choose whether to contribute $400 to the building mural or to keep that $400 for a new suit. Since a building mural is a public good, both Alyssa and Crystal 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 Alyssa and Crystal choose to contribute, then a total of $800 would be contributed to the building mural. So, Alyssa and Crystal would each receive $640 of benefit from the building mural, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table. Since a new suit is a private good, if Alyssa chooses to spend $400 on a new suit, Alyssa would get $400 of benefit from the new suit and Crystal wouldn't receive any benefit from Alyssa's choice. If Alyssa still spends $400 on a new suit and Crystal chooses to contribute $400 to the building mural, Alyssa would still receive the $320 of benefit from Crystal's generosity. In other words, if Alyssa decides to keep the $400 for a new suit and Crystal decides to contribute the $400 to the public project, then Alyssa would receive a total benefit of $400 + $320 = $720, Crystal 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 Alyssa and Crystal as previously described. Crystal Contributes Doesn't contribute $1,280 $ $1,040 $ Alyssa Contributes Doesn't contribute of the four cells of the table, which gives the greatest combined benefits to Alyssa and Crystal? When both Alyssa and Crystal contribute to the building mural When neither Alyssa nor Crystal contributes to the building mural When Alyssa contributes to the building mural and Crystal doesn't, or vice versa Now, consider the incentive facing Alyssa individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Alyssa. As shown previously, if both Alyssa and Crystal contribute to a public good, Alyssa receives a benefit of $640. On the other hand, if Crystal contributes to the building mural and Alyssa does not, Alyssa receives a benefit of $720.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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