Gobbet_10_Aggregate_Demand_Problem_Set - Gobbet # 10: Total...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Gobbet # 10: Total Willingness to Pay for Public Goods 1. Say there are 2 consumers, Jack and Jill, who each have a demand for scuba diving trips (a private good). Jack’s demand for scuba diving trips is: Q 1 = 25 – P/2 Jill’s demand for scuba diving trips is: Q 2 = 15 – P/2 What is the aggregate demand for scuba diving trips? 2. Jack and Jill also each have demand for coral reef protection (a public good). Assume the individual demands are the same as those listed above. What is the aggregate willingness to pay (WTP) for coral reef protection? What is the difference between a private and a public good? Solution: 1. To start this problem, it is useful to sketch out each individual demand curve. We can see that Jack demands more scuba diving trips at each price than Jill does. $ Q 50 40 30 20 10 10 20 30 40 Jack’s Demand Curve (Q 1 = 25 – P/2)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Notice that the Y (or $) intercepts are different for Jack and Jill. At any price over $50, the market demand will be 0. Neither Jack nor Jill will pay above this price for scuba diving trips. Between $50 and $30, Jack is the only customer in the market. In this range, the aggregate demand is the same as Jack’s individual demand: Q 1 = 25 – P/2. At $30, Jill enters the market. In the range $0 to $30 range, the aggregate demand is the horizontal sum of the two individual demand curves. To obtain this demand curve, treat
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This homework help was uploaded on 02/01/2009 for the course AEM 2500 taught by Professor Poe,g. during the Fall '07 term at Cornell University (Engineering School).

Page1 / 6

Gobbet_10_Aggregate_Demand_Problem_Set - Gobbet # 10: Total...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online