Q.1 a) The demand curves for good X of three consumers (A, B and C) are given by the equations:

Q

A

d = 100 - 0.2x

Q

B

d = 300 - 0.5Px and

Q

C

d = 500 - 0.8P

The market supply curve for X is: MCx =50+8.5Q. Determine the market equilibrium if X were a private

good. Will the market equilibrium be the same/different if X were instead a public good? Why? In case X

is a public good, determine the tax share of each individual using the benefit principle of taxation. Draw

graphs to illustrate your answer.

b) Using the information on demand and costs given in part (a), explain what might happen if individual B

volunteers to provide this good for all. Draw graphs and explain.

Q.2 Using the information in Q.1, suppose that:

(i) Individual C states that his marginal benefit is 250.

(ii) Individual A states that his marginal benefit is 100.

Calculate their Clarke tax liability. Also show each case using an appropriate diagram.