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Beth and Eleanor 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 new suit. Since a botanical garden is a public good, both Beth and Eleanor 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 Beth and Eleanor choose to contribute, then a total of $800 would be contributed to the botanical garden. So, Beth and Eleanor 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 new suit is a private good, if Beth chooses to spend $400 on a new suit, Beth would get $400 of benefit from the new suit and Eleanor wouldn't receive any benefit from Beth's choice. If Beth still spends $400 on a new suit and Eleanor chooses to contribute $400 to the botanical garden, Beth would still receive the $320 of benefit from Eleanor's generosity. In other words, if Beth decides to keep the $400 for a new suit and Eleanor decides to contribute the $400 to the public project, then Beth would receive a total benefit of $400 + $320 = $720, Eleanor 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 Beth and Eleanor as previously described. Beth Contributes Doesn't contribute Eleanor Contributes Doesn't contribute $1,280 $1,040 $ Of the four cells of the table, which gives the greatest combined benefits to Beth and Eleanor? O When Beth contributes to the botanical garden and Eleanor doesn't, or vice versa O When neither Beth nor Eleanor contributes to the botanical garden O When both Beth and Eleanor contribute to the botanical garden

Beth and Eleanor 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 new suit. Since a botanical garden is a public good, both Beth and Eleanor 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 Beth and Eleanor choose to contribute, then a total of $800 would be contributed to the botanical garden. So, Beth and Eleanor 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 new suit is a private good, if Beth chooses to spend $400 on a new suit, Beth would get $400 of benefit from the new suit and Eleanor wouldn't receive any benefit from Beth's choice. If Beth still spends $400 on a new suit and Eleanor chooses to contribute $400 to the botanical garden, Beth would still receive the $320 of benefit from Eleanor's generosity. In other words, if Beth decides to keep the $400 for a new suit and Eleanor decides to contribute the $400 to the public project, then Beth would receive a total benefit of $400 + $320 = $720, Eleanor 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 Beth and Eleanor as previously described. Beth Contributes Doesn't contribute Eleanor Contributes Doesn't contribute $1,280 $1,040 $ Of the four cells of the table, which gives the greatest combined benefits to Beth and Eleanor? O When Beth contributes to the botanical garden and Eleanor doesn't, or vice versa O When neither Beth nor Eleanor contributes to the botanical garden O When both Beth and Eleanor contribute to the botanical garden

Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter19: Externalities And Public Goods
Section: Chapter Questions
Problem 19.10P
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Beth and Eleanor 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 new suit. Since a botanical garden is a public good, both Beth and Eleanor 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 Beth and Eleanor choose to contribute, then a total of $800 would be contributed to the botanical garden. So, Beth and Eleanor 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 new suit is a private good, if Beth chooses to spend $400 on a new suit, Beth would get $400 of benefit from the new suit and Eleanor wouldn't receive any benefit from Beth's choice. If Beth still spends $400 on a new suit and Eleanor chooses to contribute $400 to the botanical garden, Beth would still receive the $320 of benefit from Eleanor's generosity. In other words, if Beth decides to keep the $400 for a new suit and Eleanor decides to contribute the $400 to the public project, then Beth would receive a total benefit of $400+ $320 = $720, Eleanor 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 Beth and Eleanor as previously described. Beth Contributes Doesn't contribute Eleanor Contributes Doesn't contribute $1,280 $1,040 $ $ Of the four cells of the table, which gives the greatest combined benefits to Beth and Eleanor? When Beth contributes to the botanical garden and Eleanor doesn't, or vice versa When neither Beth nor Eleanor contributes to the botanical garden When both Beth and Eleanor contribute to the botanical garden
Transcribed Image Text:Beth and Eleanor 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 new suit. Since a botanical garden is a public good, both Beth and Eleanor 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 Beth and Eleanor choose to contribute, then a total of $800 would be contributed to the botanical garden. So, Beth and Eleanor 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 new suit is a private good, if Beth chooses to spend $400 on a new suit, Beth would get $400 of benefit from the new suit and Eleanor wouldn't receive any benefit from Beth's choice. If Beth still spends $400 on a new suit and Eleanor chooses to contribute $400 to the botanical garden, Beth would still receive the $320 of benefit from Eleanor's generosity. In other words, if Beth decides to keep the $400 for a new suit and Eleanor decides to contribute the $400 to the public project, then Beth would receive a total benefit of $400+ $320 = $720, Eleanor 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 Beth and Eleanor as previously described. Beth Contributes Doesn't contribute Eleanor Contributes Doesn't contribute $1,280 $1,040 $ $ Of the four cells of the table, which gives the greatest combined benefits to Beth and Eleanor? When Beth contributes to the botanical garden and Eleanor doesn't, or vice versa When neither Beth nor Eleanor contributes to the botanical garden When both Beth and Eleanor contribute to the botanical garden
Now, consider the incentive facing Beth individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Beth. As shown previously, if both Beth and Eleanor contribute to a public good, Beth receives a benefit of $640. On the other hand, if Eleanor contributes to the botanical garden and Beth does not, Beth receives a benefit of $720. Complete the right-hand column of the following table, which shows the individual benefits of Beth. Hint: You are not required to consider the benefit of Eleanor. Beth Contribute Doesn't contribute Contribute These results illustrate $640, -- $720, -- Eleanor Doesn't contribute $ $ If Eleanor decides to contribute to the botanical garden, Beth would maximize her benefit by choosing On the other hand, if Eleanor decides not to contribute to the botanical garden, Beth would maximize her benefit by choosing to the botanical garden. to the botanical garden.
Transcribed Image Text:Now, consider the incentive facing Beth individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Beth. As shown previously, if both Beth and Eleanor contribute to a public good, Beth receives a benefit of $640. On the other hand, if Eleanor contributes to the botanical garden and Beth does not, Beth receives a benefit of $720. Complete the right-hand column of the following table, which shows the individual benefits of Beth. Hint: You are not required to consider the benefit of Eleanor. Beth Contribute Doesn't contribute Contribute These results illustrate $640, -- $720, -- Eleanor Doesn't contribute $ $ If Eleanor decides to contribute to the botanical garden, Beth would maximize her benefit by choosing On the other hand, if Eleanor decides not to contribute to the botanical garden, Beth would maximize her benefit by choosing to the botanical garden. to the botanical garden.
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