Question

Jennifer and Jim have decided to host an end-of-year party for their friends. The figure below shows Jennifer’s and Jim’s individual demand for the number of guests to have at their party.

Price ($) DJennifer 9 -- --------- ------------------ 6 - - - - - - - - - --- ----- Djim - - . ---- - - - - - - - - - - - - - - - - 0 1 2 3 4 5 6 7 8 9 10 Quantity

Suppose that the opportunity cost of hosting an additional guest is equal to $6. The surplus that Jim receives from paying his Lindahl price and inviting the socially optimal number of guests is equal to ____, while the surplus he receives from free-riding on Jennifer’s hosting guests is equal to ____. Therefore, given the choice, Jim will ____.

Answer 1

We've been figure outing the jennifer's and jim's individual demand for the number of guests to have at their party.

Public goods can lead to a market failure because of the free rider problem which basically says that why would people want to pay for a public good if they believe it's going to be provided anyways and there's no way to exclude them from enjoying that good so the question is what if the individual demand for the number of guests to have at their party. The question is well what is the efficient pay in way of lindalh price and what is this socially optimal the socially efficient price for that party in question how do we determine let's take up the scenario that we're talking about number of guests to arrive at the party by figuring out by individuality. we're trying to figure out well how many should whst is the socially efficient price for the guest well the rule is that we want to do that the number of guest where the marginal social benefit is equal to the marginal social cost (i.e.. indulge to enjoying the party time ) now you might be thinking hey we've got an issue here people don't buy public goods they're not like private goods it's not like we're just going to ask people for the count to determinant the price. so how do we figure out what is the total marginal social benefit to enjoy the party with relavant to number og guest arrive in it. we could basically ask individual or try figure out hypothetically what would the marginal benfit (enjoyment) to each individual how much they pay for one additional unit one additional guest under different scenario . If the price is X how much would person a pay for one additional guest and so then we could put together once we know that the preference of the people we can put together a demand curve for the each person who wants to attend the party and then we can sum those demand curves put together what's basically called collective demand curve and then we map out that collective demand curve and that's goinf to be the marginal social benefit and then where that's equal to the marginal social cost where thses two curves intersect tht's going to be a efficient price of the party . Iet's  see the diagram below this out for you so it's a little less abstract that we're using the parties . I have no idea how much it is for a guest but let's thousands of dollars  so 1000, 2000, 3000 and let's that the marginal cost curve is here it's basically five thousand dollars for the jim. That the demand for the party you can easily avail to note it very clear from the diagram of the curve, show the individual's .Remember we said that how do we determine the this the optimal the socially efficient level of this party , the marginal benefit (enjoyment ) is equal to the marginal cost( number of guest to arrive )that's our socially efficient level of price.