Question

Ques 1: A single community is comprised of just three voters i = {1, 2, 3}, each of whom have differing tastes for public parks, as described by the following three demand functions. q1 = 100 – 2p q2 = 110 – 2p q3 = 126 – 2p (a) Public parks are a local public good. Assuming that the marginal cost to society, mcs, of providing each unit of park space is $90, what is the socially optimal quantity of parks? Provide a graph with your answer. Please show all of your work. 3pt (b) Assume that the price tag for each unit of park is split evenly across the community members so that the marginal cost to each member is just $30. At this price, what is each member’s optimal quantity of park space? Is there unanimity across the three individuals regarding the desired level of park space? 3pt (c) Using Lindahl pricing (aka Lindahl taxing), what price schedule would guarantee unanimous agreement across all three members and would also yield a socially optimal outcome? Please show your work. 3pt

Ques 2: Please refer back to Q1 when answering the following questions. (a) Draw each individual’s demand curve for park space. Then calculate each person’s consumer surplus at each of the three optimal quantities. Please show your work. 3pt Hint: remember that each person must pay $30 per unit of park space consumed. (b) Using the consumer surplus calculations from Q2(a), fill in the following table by assigning a rank to each person’s park space options. 3pt Rank i = 1 i = 2 i = 3 1st 2nd 3rd (c) In a political environment with direct democracy through majority rule, which of the three park space alternatives will consistently win a series of pair-wise votes? 3pt d) Is the winning option aligned with what would be predicted by the median voter theorem? Is this outcome socially optimal? Explain why or why not. 3pt

Answer 1