module 76 Public Goods 753
Section 14 Market Failure and the Role of Government
Tackle the Test: Free-Response Questions
- Suppose Austin and Ally are the only soccer enthusiasts in a
village where any number of public soccer clinics could be put
on by visiting experts for $80 each. There are no external costs
involved. Austin’s marginal private benefit curve for soccer
clinics is horizontal at $60. Ally’s marginal private benefit curve
is a straight line starting at $100 on the vertical axis and ending
at 10 clinics on the horizontal axis. Draw a correctly labeled
graph for soccer clinics showing the marginal social cost, the
marginal social benefit, and each resident’s marginal private
benefit. Label the quantity of clinics that Austin would
purchase if he were the only resident as QAustin.Label the
quantity of clinics that Ally would purchase if she were the only
resident as QAlly.Label the optimal quantity of clinics for
society as QOptimal.
Answer (6 points):
1 point:Correct axis labels (“Marginal benefit, marginal cost” or “Dollars per
unit” on the vertical axis, “Quantity of soccer clinics” or “Q” on the horizontal
axis)
1 point:MSCcurve horizontal at a height of $80
1 point:MSBcurve starts at a height of $160 where the quantity is zero, slopes
downward to a height of $60 where the quantity is 10, and then coincides with
MPBAustin
1 point:QAustinlabeled at a quantity of zero (because MSCexceeds MPBAustin
for every clinic)
1 point:QAllyfound at the intersection of MSCand MPBAllyand shown on the
horizontal axis
1 point:QOptimalfound at the intersection of MSCand MSBand shown on the
horizontal axis
MSCMPBAustinMPBAllyMSBQAustinQAlly QOptimal$160100
80
6010
Quantity of soccer clinicsMarginal
benefit,
marginal
cost
- a. Identify and explain the two characteristics shared by
every public good.
b. Suppose a new resident moves to a community that
purchases a public good for the benefit of every member
of the community. What is the additional cost of
providing the public good to the new community
member? Explain.