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Alex and Clancy are considering contributing toward the creation of a public park. Each can choose whether to contribute $400 to the public park or
Alex and Clancy 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 weekend getaway. Since a public park is a public good, both Alex and Clancy 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 Alex and Clancy choose to contribute, then a total of $800 would be contributed to the public park. So, Alex and Clancy 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 weekend getaway is a private good, if Alex chooses to spend $400 on a weekend getaway, Alex would get $400 of benet from the weekend getaway and Clancy wouldn't receive any benefit from Alex's choice. If Alex still spends $400 on a weekend getaway and Clancy chooses to contribute $400 to the public park, Alex would still receive the $320 of benefit from Clancy's generosity. In other words, if Alex decides to keep the $400 for a weekend getaway and Clancy decides to contribute the $400 to the public project, then Alex would receive a total benefit of $400 + $320 = $720, Clancy 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. Complete the Following table, which shows the combined benets of Alex and Clancy as previously described. Clancy Contributes Doesn't contribute Contributes $1,280 Alex Doesn't contribute $1,040 Complete the following table, which shows the combined benefits of Alex and Clancy as previously described. Clancy Contributes Doesn't contribute Contributes $1,280 Alex Doesn't contribute $1,040 $ Of the four cells of the table, which gives the greatest combined benefits to Alex and Clancy? O When both Alex and Clancy contribute to the public park O When Alex contributes to the public park and Clancy doesn't, or vice versa O When neither Alex nor Clancy contributes to the public park Now, consider the incentive facing Alex individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Alex. As shown previously, if both Alex and Clancy contribute to a public good, Alex receives a benefit of $640. On the other hand, if Clancy contributes to the public park and Alex does not, Alex receives a benefit of $720. Complete the right-hand column of the following table, which shows the individual benefits of Alex. Hint: You are not required to consider the benefit of Clancy.Complete the right-hand column of the following table, which shows the individual benefits of Alex. Hint: You are not required to consider the benefit of Clancy. Clancy Contribute Doesn't contribute Contribute $640, -- $ Alex Doesn't contribute $720, -- $ If Clancy decides to contribute to the public park, Alex would maximize his benefit by choosing to the public park. On the other hand, if Clancy decides not to contribute to the public park, Alex would maximize his benefit by choosing to the public park. These results illustrate Grade It Now Save & Continue
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