Eco 200 Tutorial notes on the topic of public/private goods

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Published on 16 Oct 2011
School
UTM
Department
Economics
Course
ECO200Y5
Professor
RIVAL
NON RIVAL
EXCLUDABLE
Private
Monopoly
NON-EXCLUDABLE
Common
Public
Question solution to 114.
Music: Pm=$4000/hr PUBLIC GOOD, always put public good as good x
Drinks: Pd=$4 PRIVATE GOOD
U=MD
N=500, income(m)=$80
a)private solution:
TAN: Di/Mi=4000/4
Di=1000Mi
Bline: 80=4000Mi+4Di
80=4000Mi+4000Mi
Mi=0.01
Di=10
Ui=0.1
Not practical and not stable. Why? Because everyone has incentive to not pay for music since its
a public good, therefore, Mi=0, then U=0
b)public solution:
TAN: MRSagg= D1/M1+D2/M2+.D500/M500=PM/PD=4000/4
Because M is a public good, the amount of M is same
Therefore, D1+D2+.D500/M=100
Bline: income x n= MPM+( D1+D2+.D500)PD
80x500=4000M+1000Mx4
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