07 Jul HOW MUCH WILL TINA CLAIM TO VALUE EACH PARK IF SHE THINKS EVERYONE ELSE WILL TELL THE TRUTH?
This is a three-part question examining a problem that arises even when the government tries to prov Show more This is a three-part question examining a problem that arises even when the government tries to provide a public good getting people to reveal their value for the public good. You will need to scroll down to answer all parts of this question. Lets suppose that the government is trying to provide public parks in a small town and does so by asking people about the benefits they get from parks. The town consists of 10 people including Tina. Tina values public parks at the following rates: $8 for the first park $6 for the park and $5 for the third park. Assume that the other nine people in town have the same values for parks as Tina. In a town this small parks are public goods since all 10 people could easily fit in any given park without anyones enjoyment of the park being diminished. Finally suppose that the marginal cost of each park is $48. In an effort to be fair the total cost of all parks built is spread out across townspeople in amounts relative to their values people who report low values pay less in taxes than do people who report high values. The government knows that no one gets negative surplus and so no one would report negative values. Use this information to answer the following three questions (youll need to scroll down to answer the third question). How much will Tina claim to value each park if she thinks everyone else will tell the truth? First Park = Second Park = Third Park = Should the local government be suspicious of Tinas reported values? Why or why not? Finally suppose that the government was successfully able to calculate Tinas values for the three units. Now assume that instead of having the same value as everyone else for the three goods Tinas values were higher than those of everyone else the other members of the town value the good at $6 for the first unit. $4 for the second and $2 for the third. Alas the local government doesnt realize this and assumes that everyone else gets the same benefits as Tina. By how many dollars is society worse off than if the public good had not been provided at all (by anyone)? Answers = Show less
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