Public Goods Two people living in the same small neighborhood make up the total demand for...

Public Goods

Two people living in the same small neighborhood make up the total demand for streetlights:

P1= 200-2Q

P2= 100-Q

assume streetlights in the area a pure public good.

A. Define Pure Public good. Briefly explain why the private sector might fail to produce enough pure public goods.

B. Assume the streetlights can be provided at $240 per unit. Why would it be inefficient to just charge each person $120 per lighthouse (split the cost between them)?

C. What is the efficient number of lighthouses to build, and what should each person pay per lighthouse (Lindahl price)? Draw and solve.

Expert Solution

Rahul Sunny answered 1 year ago

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