e Suppose they agree in advance to choose the efficient number and to split the

E suppose they agree in advance to choose the

This preview shows page 2 - 3 out of 3 pages.

e. Suppose they agree in advance to choose the efficient number and to split the cost of the movies equally. When Judd is asked his willing- ness to pay, will he have an incentive to tell the truth? If so, why? If not, what will he be tempted to say? Because they are going to pay equal shares, Orson has an incentive to tell the truth about the value he places on movies to ensure that the group rents three movies. He values each of the movies more than his cost per movie ($2). f. What does this example teach you about the optimal provision of public goods?
Image of page 2
7. There is often litter along highways but rarely in people’s yards. Provide an economic explanation for this fact. Highways are public goods or common resources depending on how congested they are. When a person litters along a highway, others bear the negative externality, so the private costs are low. Yards, however, are private goods. Littering in your own yard imposes costs on you, so it has a higher private cost and is thus rare. Since highways are usually not owned by a single person, nobody cares about how dirty they are.
Image of page 3

You've reached the end of your free preview.

Want to read all 3 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture