Question

The government wishes to construct a bypass road at a particular point in order to ease congestion around the town. a study is conducted that involves three groups of individuals and the following demand curves are derived.

Group1; Q1=20-0.2P₁

GROUP2: Q₂₌ 35-0.5P₂

GROUP3; Q₃=40-0.8P₃

Where q is the size of the road and p is the contribution per group. if the total cost of constructing the road is 5 billion

Explain why the road may not be constructed if left to free market forces

What is the optimal /efficient size of the road to be constructed?

Determine each groups contribution

2) Following the varying economic downswing and upturns, it is expected that government expenditure should increase over time. Explain any five reasons for the growth of government expenditure in developing countries

3) Where individuals are left on their own, efficient solution to externalities may not be attained. Explain in details four ways in which the problem of externalities can be addressed

Answer 1