Andrew and Darnell are considering contributing toward the creation of a public park. Each can choose whether to contribute $200 to the public park or to keep that $200 for a pool table. Since a public park is a public good, both Andrew and Darnell 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 Andrew and Darnell choose to contribute, then a total of $400 would be contributed to the public park. So, Andrew and Darnell would each receive $320 of benefit from the public park, and their combined benefit would be $640. This is shown in the upper left cell of the first table. Since a pool table is a private good, if Andrew chooses to spend $200 on a pool table, Andrew would get $200 of benefit from the pool table and Darnell wouldn't receive any benefit from Andrew's choice. If Andrew still spends $200 on a pool table and Darnell chooses to contribute $200 to the public park, Andrew would still receive the $160 of benefit from Darnell's generosity. In other words, if Andrew decides to keep the $200 for a pool table and Darnell decides to contribute the $200 to the public project, then Andrew would receive a total benefit of $200 + $160 = $360, Darnell would receive a total benefit of $160, and their combined benefit would be $520. This is shown in the lower left cell of the first table. Complete the following table, which shows the combined benefits of Andrew and Darnell as previously described. Andrew Contributes Doesn't contribute Of the four cells of the table, which gives the greatest combined benefits to Andrew and Darnell? When neither Andrew nor Darnell contributes to the public park O When both Andrew and Darnell contribute to the public park O When Andrew contributes to the public park and Darnell doesn't, or vice versa Darnell Contributes Doesn't contribute $640 $ $520 $ Now, consider the incentive facing Andrew individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Andrew. As shown previously, if both Andrew and Darnell contribute to a public good, Andrew receives a benefit of $320. On the other hand, if Darnell contributes to the public park and Andrew does not, Andrew receives a benefit of $360. Andrew Complete the right-hand column of the following table, which shows the individual benefits of Andrew. Hint: You are not required to consider the benefit of Darnell. Contribute $320,-- Doesn't contribute $360,-- Contribute These results illustrate Darnell Doesn't contribute $ $ ww If Darnell decides to contribute to the public park, Andrew would maximize his benefit by choosing other hand, if Darnell decides not to contribute to the public park, Andrew would maximize his benefit by choosing public park. to the public park. On the to the
Andrew and Darnell are considering contributing toward the creation of a public park. Each can choose whether to contribute $200 to the public park or to keep that $200 for a pool table. Since a public park is a public good, both Andrew and Darnell 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 Andrew and Darnell choose to contribute, then a total of $400 would be contributed to the public park. So, Andrew and Darnell would each receive $320 of benefit from the public park, and their combined benefit would be $640. This is shown in the upper left cell of the first table. Since a pool table is a private good, if Andrew chooses to spend $200 on a pool table, Andrew would get $200 of benefit from the pool table and Darnell wouldn't receive any benefit from Andrew's choice. If Andrew still spends $200 on a pool table and Darnell chooses to contribute $200 to the public park, Andrew would still receive the $160 of benefit from Darnell's generosity. In other words, if Andrew decides to keep the $200 for a pool table and Darnell decides to contribute the $200 to the public project, then Andrew would receive a total benefit of $200 + $160 = $360, Darnell would receive a total benefit of $160, and their combined benefit would be $520. This is shown in the lower left cell of the first table. Complete the following table, which shows the combined benefits of Andrew and Darnell as previously described. Andrew Contributes Doesn't contribute Of the four cells of the table, which gives the greatest combined benefits to Andrew and Darnell? When neither Andrew nor Darnell contributes to the public park O When both Andrew and Darnell contribute to the public park O When Andrew contributes to the public park and Darnell doesn't, or vice versa Darnell Contributes Doesn't contribute $640 $ $520 $ Now, consider the incentive facing Andrew individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Andrew. As shown previously, if both Andrew and Darnell contribute to a public good, Andrew receives a benefit of $320. On the other hand, if Darnell contributes to the public park and Andrew does not, Andrew receives a benefit of $360. Andrew Complete the right-hand column of the following table, which shows the individual benefits of Andrew. Hint: You are not required to consider the benefit of Darnell. Contribute $320,-- Doesn't contribute $360,-- Contribute These results illustrate Darnell Doesn't contribute $ $ ww If Darnell decides to contribute to the public park, Andrew would maximize his benefit by choosing other hand, if Darnell decides not to contribute to the public park, Andrew would maximize his benefit by choosing public park. to the public park. On the to the
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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