Question

 3. Voluntary contributions toward a public good

 Dmitri and Jake are considering contributing toward the creation of a botanical garden. Each can choose whether to contribute $300 to the botanical garden or to keep that $300 for a new suit.

 Since a botanical garden is a public good, both Dmitri and Jake 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 Dmitri and Jake choose to contribute, then a total of $600 would be contributed to the botanical garden. So, Dmitri and Jake would each receive $420 of benefit from the botanical garden, and their combined benefit would be $840. This is shown in the upper left cell of the first table.

 Since a new suit is a private good, if Dmitri chooses to spend $300 on a new suit, Dmitri would get $300 of benefit from the new suit and Jake wouldn't receive any benefit from Dmitri's choice. If Dmitri still spends $300 on a new suit and Jake chooses to contribute $300 to the botanical garden, Dmitri would still receive the $210 of benefit from Jake's generosity. In other words, if Dmitri decides to keep the $300 for a new suit and Jake decides to contribute the $300 to the public project, then Dmitri would receive a total benefit of $300 + 8210 = $510, Jake would receive a total benefit of $210, and their combined benefit would be $720. This is shown in the lower left cell of the first table.

 Complete the following table, which shows the combined benefits of Dmitri and Jake as previously described.

  

 Of the four cells of the table, which gives the greatest combined benefits to Dmitri and Jake?

•  When both Dmitri and Jake contribute to the botanical garden

•  When neither Dmitri nor Jake contributes to the botanical garden

•  When Dmitri contributes to the botanical garden and Jake doesn't, or vice versa

 Now, consider the incentive facing Dmitri individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Dmitri. As shown previously, if both Dmitri and Jake contribute to a public good, Dmitri receives a benefit of $420. On the other hand, if Jake contributes to the botanical garden and Dmitri does not, Dmitri receives a benefit of $510.

 Complete the right-hand column of the following table, which shows the individual benefits of Dmitri.

 Hint: You are not required to consider the benefit of Jake.

 If Jake decides to contribute to the botanical garden, Dmitri would maximize his benefit by choosing _______  to the botanical garden. On the other hand, if Jake decides not to contribute to the botanical garden, Dmitri would maximize his benefit by choosing _______  to the botanical garden.

 These results illustrate _______ .

Answer 1

So when only one contributes, & other doesn't, then the person who contributes , he gets benefit = 210

While the other person, who doesnt contribute, gets 210+300

So total benefit = 210+510 = 720.

when no one contribute, each gets only 300 $ benefit from private good.

So combined total benefit = 600

MCQ, : option A

maximum joint profit is when both contribute, & it is 840

Now only for Dmitri

when he contributes, & other doesn't , so get benefit of only 210, from public good only.

when no one contributes, Dmitri gets only 300.

thus if Jake contributes, Dmitri maximize his payoff from not contributing of 510,

If Jake doesn't contribute, Dmitri maximize profits from not contributing,

these results show Free Riding .

free riding imply that Dmitri wants to enjoy public good without contributing to public good

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