Consider a town with four citizens. All of them love fireworks and are willing t
ID: 1161688 • Letter: C
Question
Consider a town with four citizens. All of them love fireworks and are willing to pay the amount of dollars in the following table to see the fireworks
Suppose that a firework show costs $5. Suppose that if any of them decides to purchase fireworks, all other citizens can enjoy them the same way as if they bought it themselves. Answer whether each of the following are True/False and clearly explain how you reached your answer
A. Nobody is willing to pay $5 for fireworks, because this is a common resource.
B.If the government proposes to tax everybody by $1.25 the efficient outcome can be achieved and this proposal would pass under majority voting. (So it is supported by more than half of citizens.).
C.If the government proposes to introduce a 50% tax on the willingness to pay the efficient outcome can be achieved and this proposal would pass under even if all citizens have the right to veto it. (So the policy is supported by all citizens)
Ash Bishop Call Deckard Willingness to Pay $1 $2 $3 $4Explanation / Answer
Common resources are nonexcludable but rivalry in nature. That is anyone can get benefit from this good without paying. So everyone wants to enjoy this free riding.
A. As the firework service is nonexcludable no one wants to pay $5. everyone wants to enjoy freeride. So the given statement is TRUE.
B. If the government propose a tax to everyone by $1.25, the total collection would be (4*1.25)=$5. Fire work's cost is $5 so the tax can meet the cost and the efficient outcome can be achieved if all citizens accept this. More than half of citizens accept this so this tax will be passed and $5 will be collected for provding firework. The given statemnet is TRUE.
C. If the government imposes 50% tax on the willingness to pay, the total collection of the government will be (0.5+1+1.5+2)=$5 and it is accepted by all 4 citizens. so the government can provide the firework. The given statement is TRUE.