Homework (Ch 11) 3. Voluntary contributions toward a public good Rosa and Alyssa are considering contributing toward the creation of a public park. Each can choose whether to contribute $300 to the public park ort keep that $300 for a cell phone. Since a public park is a public good, both Rosa and Alyssa 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 Rosa and Alyssa choose to contribute, then a total of $600 would be contributed to the public park. So, Rosa and Alyssa would each receive $420 of benefit from the public park, and their combined benefit would be $840. This is shown in the upper left call of the first table. Since a cell phone is a private good, If Rosa chooses to spend $300 on a cell phone, Rosa would get $300 of benefit from the cell phone and Alyssa wouldn't receive any benefit from Rosa's choice. If Rosa still spends $300 on a cell phone and Alyssa chooses to contribute $300 to the public park, Rosa would still receive the $210 of benefit from Alyssa's generosity. In other words, If Rosa decides to keep the $300 for a cell phone and Alyssa decides to contribute the $300 to the public project, then Rosa would receive a total benefit of $300 + $210 = $510, Alyssa would receive a total benefit of $210, and their combined benefit would be $720. This is shown in the lower left call of the first table. Complete the following table, which shows the combined benefits of Rose and Alyssa as previously described. Alyssa Contributes Doesn't contribute $840 Rosa Doesn't contribute $720 of the four cells of the table, which gives the greatest combined benefits to Rosa and Alyssa? When Rosa contributes to the public park and Alyssa doesn't, or vice versa When both Rosa and Alyssa contribute to the public park When neither Rosa ner Alyssa contributes to the public park Now, consider the Incentive facing Rosa Individually. The following table looks similar to the previous one, but this time, it is partially completed with the Individual benefit data for Rose. As shown previously, if both Rosa and Alyssa contribute to a public good, Rosa receives a benefit of $120. On the other hand, It Alyssa contributes to the public park and Rosa does not, Rosa receives a benefit of $510. Contributes $840 Rosa Doesn't contribute $720 of the four cells of the table, which gives the greatest combined benefits to Rosa and Alyssa? When Rosa contributes to the public park and Alyssa doesn't, or vice versa When both Rosa and Alyssa contribute to the public park When neither Rosa nor Alyssa contributes to the public park Now, consider the incentive fading Rosa individually. The following table looks similar to the previous one, but this time, it is partially completed with the Individual benefit data for Rosa. As shown previously, if both Rosa and Alyssa contribute to a publlc good, Rosa receives a benefit of $420. On the other hand, If Alyssa contributes to the public park and Rosa does not, Rosa receives a benefit of $510. Complete the right-hand column of the following table, which shows the individual benefits of Rosa. Hint: You are not required to consider the benefit of Alyssa. Doesn't contribute Contribute $420,- Doesn't contribute $510,- Contribute Rosa If Alyssa decides to contribute to the public park, Rosa would maximize her benefit by choosing other hand, if Alyssa decides not to contribute to the public park, Rosa would maximize her bene park. to the public park. On the to the public to contribute These results illustrate not to contribute s the individual benefits of Rosa. Fimize her benefit by choosing Rosa would maximize her benefit by choosing to the public park. On the to the public to contribute not to contribute che Individual benefit data for Rosa. As show previously, the other hand, If Alyssa contributes to the public park and Rosa does not, Rosa receives a ber Complete the right-hand column of the following table, which shows the individual benefits of Hint: You are not required to consider the benefit of Alyssa. Alyssa Doesn't contribute Contribute Contribute $420,- Rosa Doesn't contribu why markets are efficient the free-rider problem If Alyssa decides to cor other hand, if Alyssa de park. the Tragedy of the Commons maximize her benefit by choosing rk, Rosa would maximize her benefit the creation of a positive externality These results illustrate