Therefore total benefit is larger when both people contribute to the water

Therefore total benefit is larger when both people

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themselves, but also others around them. Therefore, total benefit is larger when both people contribute to the water fountain. Now, consider the incentive facing Sean individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Sean. As shown previously, if both Sean and Bob contribute to a public good, Sean receives a benefit of $180. On the other hand, if Bob contributes to the water fountain and Sean does not, Sean receives a benefit of $190. Complete the right-hand column of the following table which shows the individual benefits of Sean. Hint: You are not required to consider the benefit of Bob. Points: 0 / 1 Close Explanation Explanation: If Sean contributes to the water fountain and Bob does not, then both Sean and Bob would receive a benefit of $90 from Sean's contribution. However, because Bob chooses to spend $100 on a cell phone, only Bob receives the additional benefit of $100. Therefore, Sean's benefit is only $90, which he gained when he contributed to the water fountain.
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If neither Sean nor Bob contributes to the water fountain, each would choose to use his $100 for a cell phone. Because the cell phone is a private good, each person receives a benefit only from his own consumption of the cell phone. Therefore, in this case, Sean's benefit is the $100 he gets from his cell phone. If Bob decides to contribute to the water fountain, Sean would maximize his benefit by choosing to not contribute to the water fountain. On the other hand, if Bob decides not to contribute to the water fountain, Sean would maximize his benefit by choosing to not contribute to the water fountain. Points: 1 / 1 Close Explanation Explanation: When Bob contributes to the water fountain, Sean can either contribute as well and get a benefit of $180 or not contribute and receive a benefit of $190. Therefore, he would choose not to contribute. When Bob does not contribute to the water fountain, Sean can either contribute and get a benefit of $90, or not contribute and receive a benefit of $100. Therefore, he would, again, choose not to contribute. Notice that Bob's action doesn't have any impact on Sean's decision. You can see this by examining the marginal benefit Sean receives from contributing $100 to the water fountain (+$90) versus spending $100 on cell phone (+$100). Therefore, regardless of Bob's action, Sean's additional benefit is higher when he does not contribute to the water fountain. These results illustrate the free-rider problem . Points: 1 / 1 Close Explanation Explanation: A free rider is someone who receives the benefit of a good but does not pay for it. Sean has a strong incentive not to contribute to the water fountain, regardless of Bob's decision, because Sean will always receive a higher benefit from not contributing to the water fountain than from contributing.
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