Question

There are 750,000 residents in a city. Based on a government poll, they fall within three groups regarding their willingness to pay for the construction of a park.

- 200,000 of the residents are not willing to pay for the park at all,

- 250,000 residents are willing to pay $12,

- 300,000 are willing to pay $100.

The cost of the park will be $15 million. Should it be built? Why or why not?

Would this answer change if the only way to pay for it is to divide the cost equally across each of the 750,000 residents? Why or why not?

Answer 1

Sum of the revenue generated is $33 Million from the resident.

Number of Residents	Willing to Pay	Total Revenue they generate
200000	0	-
250000	12	3,000,000
300000	100	30,000,000
Total	33,000,000

As the revenue generated is more than the cost of building a park. This park should be built as there are 200,000 residents who are not willing to pay for it either because they do not money, they do not go to park or they wants to free ride on the park made by all other residents. If we wait for these 200,000 to pay their part, we will never be able to build park.

If we tends to divide the cost equally among all 750,000 residents, Building a park is for social betterment of society and we should put burden on rich for that and less on poor to make equitable distribution in society. Dividing equally amoung would put excess burden on poor and less on rich, thus I would suggest to go with above policy.