3 Voluntary Contributions Toward A Public Good Caroline And Frances Are Considering Contributing Toward The Creation Of 1 (43.72 KiB) Viewed 34 times
3 Voluntary Contributions Toward A Public Good Caroline And Frances Are Considering Contributing Toward The Creation Of 2 (35.24 KiB) Viewed 34 times
3. Voluntary contributions toward a public good Caroline and Frances 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 r a new suit. Since a public park is a public good, both Caroline and Frances will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.70 of benefit. For example, if both Caroline and Frances choose to contribute, then a total of $800 would be contributed to the public park. So, Caroline and Frances would each receive $560 of benefit from the public park, and their combined benefit would be $1,120. This is shown in the upper left cell of the first table. Since a new suit is a private good, if Caroline chooses to spend $400 on a new suit, Caroline would get $400 of benefit from the new sult and Frances wouldn't receive any benefit from Caroline's choice. If Caroline still spends $400 on a new suit and Frances chooses to contribute $400 to the public park, Caroline would still receive the $260 of benefit from Frances's generosity. In other words, if Caroline decides to keep the $400 for a new suit and Frances decides to contribute the $400 to the public project, then Caroline would receive a total benefit of $400+ $280 = $680, Frances would receive a total benefit of $280, and their combined benefit would be $960. This is shown in the lower left cell of the first table. Complete the following table, which shows the combined benefits of Caroline and Frances as previously described. Caroline Frances Contributes Doesn't contribute - $1,120 $ Doesn't contribute 5960 S Contributes of the four cells of the table, which gives the greatest combined benefits to Caroline and Frances?
of the four cells of the table, which gives the greatest combined benefits to Caroline and Frances? When both Caroline and Frances contribute to the public park When Caroline contributes to the public park and Frances doesn't, or vice versa When neither Caroline nor Frances contributes to the public park Now, consider the incentive facing Caroline individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Caroline. As shown previously, if both Caroline and Frances contribute to a public good, Caroline receives a benefit of $560. On the other hand, if Frances contributes to the public park and Caroline does not, Caroline receives a benefit of $680. Complete the right-hand column of the following table, which shows the individual benefits of Caroline. Hint: You are not required to consider the benefit of Frances. Caroline Contribute $500,- Contribute Doesn't contribute 1600,- Frances Doesn't contribute S $ If Frances decides to contribute to the public park, Caroline would maximize her benefit by choosing other hand, If Frances decides not to contribute to the public park, Caroline would maximize her benefit by choosing public park. These results illustrate Grade It Now to the public park. On the to the Save & Continue
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