Problem Set 11 Solutions


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Unformatted text preview: lative to the benefit as much at any particular point in time because it is in the present. The people are naïve because they think they’ll go more than they actually do. When they sign up for the monthly plan they mistakenly believe that it will be cost‐effective because they think they’ll go to gym very often. But when the future actually arrives, they postpone their visit to the gym. 2. (Public Goods: An example of a club good) The town of Pleasantville is thinking of building a swimming pool. Building and operating the pool will cost the town $5,000 per day. There are three groups of potential pool users in Pleasantville: (1) 1,000 families who are each willing to pay $3 per day for the pool; (2) 1,000 families who are each willing to pay $2 per day for the pool; and (3) 1,000 families who are each willing to pay $1 per day for the pool. Suppose also that the intended pool is large enough so that whatever number of families come on any day will not affect what people are willing to pay for the pool. (a) Is the pool rival? Is it excludable? Is it a public good? Explain. A good is a rival good if one person’s use of it diminishes another’s enjoyment. An apple would be an example of a good with complete rivalry in consumption. When I eat it, you cannot. In the case of a very large pool, there is no rivalry in consumption. A large pool can accommodate many swimmers. You and I can both consume the pool at the same time. A good is excludable if people can be prevented from using it. The pool in Pleasantville could be made excludable if the town decides it wants to charge an admissions fee or require the purchase of an annual pass. If Pleasantville...
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