Question

Samantha. E en Jane and Dana are looking to construct a commun garden which he share and on to eth The a en ll cost hem 5 Ο Ο co uct Samantha and Ellen are both willing to pay $1,900 each, Jane is willing to pay $1,000 and Daria is only willing to pay S950. Daria and Jane earn half as much as Samantha and Ellen Answer the following questions: a. Assuming the community garden is a public good, should it be constructed? Type Y for Yes or N for No b. Samantha suggests they use a proportional taxation system, how much will Jane pay? S Answer to the nearest whole dollar (with no decimal places) c. Would the four agree to fund the garden using a proportional taxation system? Type Y for Yes or N for No

Could anyone help me to check this？ I thought it is wrong.

Answer 1

A public good refers to the good from which no one is excluded. A consumer can consume it without reducing its availability to other consumer. In this case, community garden is also a public good.

a. Yes

Following are the prices each person is willing to pay

Samantha=$1900 Ellen=$1900 Jane=$1000 Daria=$950

Total willingness to pay=$(1900+1900+1000+950)= $5750

In case of Public goods, Efficiency is achieved when Marginal cost of production equals the sum of prices everyone is willing to pay.  

Here 5750> 5600, Thus it should be constructed.

b. 950

A proportional taxation system refers to the tax system in which the income tax implied is the same percentage of income for every person no matter how much they are earning. If they use the proportional tax system, everyone should contribute the same percentage of their income. As we know that Jane's income is half of Samantha and Ellen, so her contribution will also be half of theirs i.e. 1900/2= 950

c.No

As it is a public good, they will not get any returns.so they will construct only if everyone is paying an equal amount of contribution.If they use proportional tax system, the all will not pay equal amount, thus it might be difficult for them to accept this proposal.