7 Two towns, each with three residents, are deciding whether to put on a fireworks display to celebrate the New Year. Fireworks cost $360. In each town, some people enjoy fireworks more than others.

a In the town of Bayport, each of the residents values the public good as follows:

Frank Joe Callie

$50

$100

$300 Would fireworks pass a cost-benefit analysis? Explain.

b The mayor of Bayport proposes to let the residents vote on whether to put on the fireworks display. If the majority of voters vote yes, the cost wi ll be split equally among the residents. Who would vote in favour and who would vote against? Would the vote yield the same answer as the cost-benefit analysis?

c In the town of River Heights, each of the residents values the public good as follows:

Nancy Bess Ned

$20

$140

$160 Would fireworks pass a cost-benefit analysis? Explain.

d The mayor of River Heights also proposes to hold a vote. Who would vote in favour and who 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?