ECONOMICS 1010 B
PROBLEM # 6
J. Allen
Spring, 2006
The market consists of three people, George, Martha and Lo. The following are the demand curves for
Good X for George, Martha, and Lo:
G
P
8
7
6
5
4
3
M
Q
1
2
3
4
5
6
P
6
5
4
3
L
Q
1
2
3
4
P
10
9
8
7
6
5
4
3
Q
1
2
3
4
5
6
7
8
1. If X is a private good, find the market demand curve.
2. Given the supply curve:
P
Qs
9
8
7
6
5
4
12
11
10
9
8
7
Private
Market D
P
Qd
Find equilibrium P and Q .
3. If X is a pure public good, find the market demand curve. (Note, to derive market demand, the
question you ask is: To have: Q , People are willing to pay: P .)
Describe what can make X public:
4. Given the supply curve:
P
20
18
16
14
12
Qs
4
3
2
1
0
Public
Market D
P
Qd
Market D
no Martha
P
Qd
Find equilibrium P and Q .
5. Martha announces that X is of no value to her, so she won’t pay anything. George and Lo are
“honest”. Find the market demand curve. What is equilibrium P and Q ?
In the equilibrium of 4. above, Martha was paying $4 for each unit produced. What is her gross
gain from “lying”?_______ Her gross loss from “lying”?_______ Her net gain from “lying”?______
What do we (economists) call Martha?___________________________________