EWU - ECON 457 - Natural Resource Economics
PUBLIC GOODS
Problem. Tarzan and Jane are living with Bob in the jungle. Tarzan and Jane, each have a demand for good A.
Bob is the supplier of good A.
Part I.
(a) Jane demand curve for good A is: Q = 3 -3/4 P. In the space below, plot Jane demand curve.
(b) If Jane had to pay $3 per unit of good A, how many units of good A would Jane buy? Get the exact
output number through calculation. Identify that output in your diagram as QJ.
(c) Tarzan demand curve for good A is: Q = 8 - 2P. Plot this demand curve in the space above. If Tarzan
had to pay $3 per unit of good A, how many units of good A would Tarzan buy? Get the exact output
number through calculation. Identify that output in your diagram as QT.
Part II. Let good A be tropical fruits.
(a) Draw the market demand curve on the diagram in the previous page. (Hint: make sure to first determine
what tropical fruits are: public or private goods?)
(b) Bob produces good A at a constant marginal cost of $3 per unit. Plot the MC curve on the diagram in
the previous page. What are the market equilibrium price and quantity? Get the exact price and quantity.
Identify them as P* and Q* on your diagram.
(c) Is the allocation found in Part I. Efficient? Explain.
Part III. Let good A be patrolling.
(a) In the space on the next page, replot Jane individual demand curve, Tarzan individual demand curve,
and the MC curve.
(b) Draw the market demand curve. (Hint: make sure to first determine what patrolling is: a public or
private good?)
(c) What is the market equilibrium quantity? Get the exact quantity. Identify it as Q* on your diagram. Is
this an efficient level of provision of good A? Explain.
(d) How much should Jane be charged for patrolling and how much should Tarzan be charged for patrolling
if the efficient level of patrolling were to be provided? Get the exact prices through calculation, and
identify those prices in your diagram as PJ and PT respectively.
Part IV. Let patrolling be privately provided.
(a) In the space below, replot Jane individual demand curve, Tarzan individual demand curve, the market
demand curve and the MC curve.
(b) Determine and illustrate on your diagram what would most likely be the outcome of a private or
voluntary provision. What would the level of provision be? Identify this quantity as Q*. How much
would Jane contribute? How much would Tarzan contribute? (Assume Jane is the first to contribute.)
(c) Is the allocation find in (b) Efficient? Explain.