There are three people who consume public and private goods. As usual, the public good is x, and i represents person i's consumption of the private good. The prices of both the public good and the rivate good are $1 per unit. The initial endowments of the private good are (w1, w2, w3) = (10, 10, 10). 'he three people have the following utility functions: %3D u1 (x, y1) = In x + Y1, u2 (x, y2) = 2 In a + Y2, u3(r, Y3) = 3 In r + Y3. (i) Assume that the public good is purchased privately, and that person 3 is the first to go to the market and buy the public good. Assume he does not act strategically he ignores persons 1 and 2 when he buys x, and thinks only of his own utility maximisation problem. What is the outcome? How much of the public good does person 3 buy? How much do persons 1 and 2 buy?

There are three people who consume public and private goods. As usual, the public good is x, and i represents person i's consumption of the private good. The prices of both the public good and the rivate good are $1 per unit. The initial endowments of the private good are (w1, w2, w3) = (10, 10, 10). 'he three people have the following utility functions: %3D u1 (x, y1) = In x + Y1, u2 (x, y2) = 2 In a + Y2, u3(r, Y3) = 3 In r + Y3. (i) Assume that the public good is purchased privately, and that person 3 is the first to go to the market and buy the public good. Assume he does not act strategically he ignores persons 1 and 2 when he buys x, and thinks only of his own utility maximisation problem. What is the outcome? How much of the public good does person 3 buy? How much do persons 1 and 2 buy?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.7P

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