Question

. The cost of the provision of the pure public good X is 3$ (and constant) per unit. Following the marginal benefits for the 5 residents of a community at each quantity of X

Quantity of X

Voter	1	2	3	4
A	4	3	2	1
B	3	2	1	0
C	2	1	0	0
D	1	0	0	0
E	0	0	0	0

Note: each cell represents each voter’s marginal benefit given the quantity of X.

find:

a. the equilibrium under the Lindahl allocation.

b. the equilibrium under the simple majority rule (each voter pays 0.60$ for the provision per unit).

c. Does the majority rule provide the “optimal” outcome? Explain.

d. Assume now that X is a pure private good with exactly the same MSC = 3$ as before. Describe the equilibrium quantity. Explain who will buy X, if any.

Answer 1