Back to Assignment Attempts 2.5 Keep the Highest 2.5 / 5 3. Voluntary contributions toward a public good Nick and Tim are considering contributing toward the creation of a water fountain. Each can choose whether to contribute $300 to the water fountain or to keep that $300 for a pool table. Since a water fountain is a public good, both Nick and Tim 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 Nick and Tim choose to contribute, then a total of $600 would be contributed to the water fountain, So, Nick and Tim would each receive $420 of benefit from the water fountain, and their combined benefit would be $840. This is shown in the upper left cell of the first table. Since a pool table is a private good, if Nick chooses to spend $300 on a pool table, Nick would get $300 of benefit from the pool table and Tim wouldn't receive any benefit from Nick's choice. If Nick still spends $300 on a pool table and Tim chooses to contribute $300 to the water fountain, Nick would still receive the $210 of benefit from Tim's generosity. In other words, if Nick decides to keep the $300 for a pool table and Tim decides to contribute the $300 to the public project, then Nick would receive a total benefit of $300 + $210 - $510, Tim would receive a total benefit of $210, and their combined benefit would be $720. This is shown in the lower left cell of the first table. MO WComplete the following table, which shows the combined benefits of Nick and Tim as previously described. Tim 'Contributes | Doesn't contribute Contributes $840 Doesntcontnbute $720 Nick Of the four cels of the table, which gives the greatest combined benefits to Nick and Tim? When both Nick and Tim contribute to the water fountain O When neither Nick nor Tim contributes to the water fountain O When Nick contributes to the water fountain and Tim doesn't, or vice versa Now, consider the incentive facing Nick individually. The following table looks similar to the prvious one, but this time, It is partially completed with the Indlvidual benefit data for Nick. As shown previously, if both Nick and Tim contribute to a public good, Nick receives a benefit of $420. On the 'other hand, If Tim contributes to the water fountain and Nick does not, Nick receives a benefit of $510. R LR A Complete the right-hand column of the following table, which shows the Individual benefits of Nick. E Hint: You are not required to consider the benefit of Tim. Tim Contribute Doesn't contribute EI Contribute $420. $ Nick Doesn't contribute $510,- $ If Tim decides to contribute to the water fountain, Nick would maximize his benefit by choosing to the water fountain. On the other hand, if Tim decides not to contribute to the water fountain, Nick would maximize his ben to the water to contribute fountain. not to contribute These results illustrate Grade It Now Save & Continue ? Continue without savingComplete the right-hand column of the following table, which shows the Individual benefits of Nick. E Hint: You are not required to consider the benefit of Tim. Tim Contribute Doesn't contribute Contribute $420, $ Nick Doesn't contr the free-rider problem the Tragedy of the Commons If Tim decides to contri maximize his benefit by choosing to the water fountain. On the other hand, if Tim decid the creation of a positive externality ain, Nick would maximize his benefit by choosing to the water fountain. why markets are efficient These results illustrate Grade It Now Save & Continue Continue without saving W 3 ho