Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is the willingness to pay for each film. Dwayne Javier Salman Chris First Film $7 $5 $3 $2 Second Film 6 4 2 1 Third Film 5 3 1 0 Fourth Film 4 2 0 0 Fifth Film 3 1 0 0 Within the dorm room, is the showing of a movie a public good? Why or why not? If it costs $8 to stream a movie, how many movies should the roommates stream to maximize total surplus? If they choose the optimal number from part (b) and then split the cost of streaming the movies equally, how much surplus does each person obtain from watching the movies? Is there any way to split the cost to ensure that everyone benefits? What practical problems does this solution raise? Suppose they agree in advance to choose the optimal number of movies and split the cost equally. When Dwayne is asked his willingness to pay, will he have an incentive to tell the truth? If so, why? If not, what will he be tempted to say? What does this example teach you about the optimal provision of public goods?
Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is the willingness to pay for each film. Dwayne Javier Salman Chris First Film $7 $5 $3 $2 Second Film 6 4 2 1 Third Film 5 3 1 0 Fourth Film 4 2 0 0 Fifth Film 3 1 0 0 Within the dorm room, is the showing of a movie a public good? Why or why not? If it costs $8 to stream a movie, how many movies should the roommates stream to maximize total surplus? If they choose the optimal number from part (b) and then split the cost of streaming the movies equally, how much surplus does each person obtain from watching the movies? Is there any way to split the cost to ensure that everyone benefits? What practical problems does this solution raise? Suppose they agree in advance to choose the optimal number of movies and split the cost equally. When Dwayne is asked his willingness to pay, will he have an incentive to tell the truth? If so, why? If not, what will he be tempted to say? What does this example teach you about the optimal provision of public goods?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter12: Environmental Protection And Negative Externalities
Section: Chapter Questions
Problem 40P: Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in...
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Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is the
|
|
Dwayne |
Javier |
Salman |
Chris |
|
First Film |
$7 |
$5 |
$3 |
$2 |
|
Second Film |
6 |
4 |
2 |
1 |
|
Third Film |
5 |
3 |
1 |
0 |
|
Fourth Film |
4 |
2 |
0 |
0 |
|
Fifth Film |
3 |
1 |
0 |
0 |
- Within the dorm room, is the showing of a movie a public good? Why or why not?
- If it costs $8 to stream a movie, how many movies should the roommates stream to maximize total surplus?
- If they choose the optimal number from part (b) and then split the cost of streaming the movies equally, how much surplus does each person obtain from watching the movies?
- Is there any way to split the cost to ensure that everyone benefits? What practical problems does this solution raise?
- Suppose they agree in advance to choose the optimal number of movies and split the cost equally. When Dwayne is asked his willingness to pay, will he have an incentive to tell the truth? If so, why? If not, what will he be tempted to say?
- What does this example teach you about the optimal provision of public goods?
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