Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Suppose we are considering fire hydrants in a small neighborhood. For simplicity, assume that only two individuals live in this neighborhood; Bob and Nancy.
Suppose we are considering fire hydrants in a small neighborhood. For simplicity, assume that only two individuals live in this neighborhood; Bob and Nancy. Once the fire hydrants are supplied by the city, they are automatically available to both Bob and Nancy. Thus, we can view the fire hydrants as public goods. The table below summarizes Bob and Nancy's individual marginal willingness to pay for fire hydrants. Number of Fire Hydrants 12345 2 3 Bob's MWTP $480 400 320 240 160 Nancy' MWTP $80 60 40 20 0 a. Use this information to construct the market demand curve for fire hydrants reflecting the true marginal willingness to pay as a market. Graph this demand curve clearly marking out all points and values. b. Suppose that one fire hydrant is provided in the neighborhood. Bob and Nancy are both being charged a municipal tax of $300 each to pay for the hydrant. Would Bob or Nancy (or both) be considered a 'free rider'? Explain your answer.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Number of fire hydrants Market demand Bobs WTP Nancy...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started