Answered: Two towns, each with three members_,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Two towns, each with three members_, arc deciding
whether to put on a fireworks display to celebrate the
New Year. Fireworks cost S360. (n each town, some
people enjoy fireworks more than others.
a. ln the town of Bayport. each of the residents values
the public good as follows:
Frank $50
Joe $100
Call ie $300
Would fi.rc\vorks pass a cost-benefit analysis?
Explain.
b. The mayor of Bayport proposes to decide by
majority rule and_, if the fi.re\\'Orks referendum
passes, to split the cost equally among all
residents. Who would vote in favor, and who
would vote against? Would the vote yield the
same answer as the cost-benefit analysis?
c. ln the town of River Heights, each of the residents
values the public good aS follows:
Nancy $20
Bess $140
Ned $160
Would fireworks pass a cost-benefit analysis?
Explain.
d. The mayor of River Heights also proposes to
decide by majority rule and, if lhc fireworks
referendum passes, to split the cost equally among
aU residents. Who would vote in favor, and \\•ho
would vote against? Would the vote yield the
same answer as the cost-benefit analysis?
e. What do you think these examples say about the
optimal provision of public goods?

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