Diane's Diamond Depot and Sean's Sock Shop are the only two stores in a small shopping center sharing a parking lot. The owner's are considering hiring a shared overnight security guard to patrol the parking lot. Assume the presence of a security guard in the parking lot will deter criminal activity to either store.

Diane has very valuable inventory, and is very afraid of a break-in so she is willing to pay $700 per week for a security guard. Sean doesn't have as valuable of inventory, but is still concerned with break-ins or vandalism and is willing to pay $300 per week for a security guard.

The cost to hire a security guard to patrol the lot is $800 per week.

(a) Explain why the security guard can be considered a public good when we are only considering the two store owners as "the economy". Your answer should include the two characteristics of public goods and explain how they both fit this scenario.

(b) If they are going to hire a security guard, how would you suggest the $800 per week is divided? Explain your answer. (There is no right answer, but both tenants need to agree, so there are hypothetically wrong answers)

(c) Explain how both tenants have incentive to lie about how much they are willing to pay for a security guard and how this could lead to an inefficient outcome. Use your answer from the previous question as the basis for a numerical explanation of the incentive to lie.

(d) What do economists call this "problem", that the incentive to get access to a public good at the lowest possible price can lead to underprovision of public goods?

(e) In this chapter you learned "the tragedy of the commons". Even though toilet paper is a private good, the access to toilet paper, meaning the ability to walk into a store to buy it, is non-exclusive (anyone may walk into to Target, Wal-mart, etc.) and rivalrous (when there is no TP left on the shelves, nobody has access) meaning it could be considered a common good. Explain the "tragedy of the commons" to me as it relates to the toilet paper crisis from last year.

Hint: You are being scored on your ability to explain the tragedy of the commons, not on your ability to provide the definition of the tragedy of the commons, nor you ability to explain your experience with the toilet paper shortage, so your answer should be using this real life event to explain this economic phenomenon.