Brian and Edison are considering contributing toward the creation of a public park. Each can choose whether to contribute $400 to the public park or to keep that $400 for a cell phone. Since a public park is a public good, both Brian and Edison 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 Brian and Edison choose to contribute, then a total of $800 would be contributed to the public park. So, Brian and Edison would each receive $640 of benefit from the public park, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table. Since a cell phone is a private good, if Brian chooses to spend $400 on a cell phone, Brian would get $400 of benefit from the cell phone and Edison wouldn't receive any benefit from Brian's choice. If Brian still spends $400 on a cell phone and Edison chooses to contribute $400 to the public park, Brian would still receive the $320 of benefit from Edison's generosity. In other words, if Brian decides to keep the $400 for a cell phone and Edison decides to contribute the $400 to the public project, then Brian would receive a total benefit of $400 + $320 = $720, Edison 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. Now, consider the incentive facing Brian individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Brian. As shown previously, if both Brian and Edison contribute to a public good, Brian receives a benefit of $640. On the other hand, if Edison contributes to the public park and Brian does not, Brian receives a benefit of $720. Complete the right-hand column of the following table, which shows the individual benefits of Brian. Hint: You are not required to consider the benefit of Edison. Brian Contribute $640, -- Doesn't contribute $720,-- Contribute These results illustrate Edison Doesn't contribute $ $ If Edison decides to contribute to the public park, Brian would maximize his benefit by choosing other hand, if Edison decides not to contribute to the public park, Brian would maximize his benefit by choosing park. to the public park. On the to the public

Brian and Edison are considering contributing toward the creation of a public park. Each can choose whether to contribute $400 to the public park or to keep that $400 for a cell phone. Since a public park is a public good, both Brian and Edison 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 Brian and Edison choose to contribute, then a total of $800 would be contributed to the public park. So, Brian and Edison would each receive $640 of benefit from the public park, and their combined benefit would be $1,280. This is shown in the upper left cell of the first table. Since a cell phone is a private good, if Brian chooses to spend $400 on a cell phone, Brian would get $400 of benefit from the cell phone and Edison wouldn't receive any benefit from Brian's choice. If Brian still spends $400 on a cell phone and Edison chooses to contribute $400 to the public park, Brian would still receive the $320 of benefit from Edison's generosity. In other words, if Brian decides to keep the $400 for a cell phone and Edison decides to contribute the $400 to the public project, then Brian would receive a total benefit of $400 + $320 = $720, Edison 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. Now, consider the incentive facing Brian individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Brian. As shown previously, if both Brian and Edison contribute to a public good, Brian receives a benefit of $640. On the other hand, if Edison contributes to the public park and Brian does not, Brian receives a benefit of $720. Complete the right-hand column of the following table, which shows the individual benefits of Brian. Hint: You are not required to consider the benefit of Edison. Brian Contribute $640, -- Doesn't contribute $720,-- Contribute These results illustrate Edison Doesn't contribute $ $ If Edison decides to contribute to the public park, Brian would maximize his benefit by choosing other hand, if Edison decides not to contribute to the public park, Brian would maximize his benefit by choosing park. to the public park. On the to the public

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter3: Interdependence And The Gains From Trade

Section: Chapter Questions

Problem 3CQQ

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