Assume that a small town uses a referendum to overcome the free-ridership problem and determine

how its residents might value a new water filtration system for its public water supply. The voting results

are aggregated by the town's two districts, yielding the following demand estimates:

District 1:

Q

= 160

20

P

1

District 2:

Q

= 60

5

P

2

where Q is the expected percent of copper to be filtered by the system and P is the price in millions of

dollars.

a) Based on these estimates, determine the town's market demand for this public good, the new filtration

system. Provide a graphical and algebraic answer.

b) If the market supply for the system were P = 6 + 0.15 Q, what would be the equilibrium price and

quantity for the town? Provide a graphical and algebraic answer.

c) Calculate total welfare from the provision of the public good.