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Questions › JNU › JNU SIS 2018 › Q19
2 marks, −1Microeconomics › Market failure, externalities and public goods › Public goods and the classification of goodsModerateabout 2 min

JNU SIS 2018 Question 19: Market failure, externalities and public goods

Suppose there are three people in a district with different marginal benefits from improved air quality. The marginal willingness to pay for improved air quality for two of them is given by pi=20−Qp_i = 20 - Qpi​=20−Q, i=1,2i = 1, 2i=1,2 and for the third person is given by p3=10−Qp_3 = 10 - Qp3​=10−Q, where QQQ refers to the level of air quality, and pip_ipi​ refers to the price per unit of QQQ that individual iii is willing to pay. Let marginal cost of improving air quality be 5Q5Q5Q. What is the socially optimum level of air quality?

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Suppose there are three people in a district with different marginal benefits from improved air quality. The marginal willingness to pay for improved air quality for two of them is given by pᵢ = 20 - Q, i = 1, 2 and for the third person is given by p₃ = 10 - Q, where Q refers to the level of air quality, and pᵢ refers to the price per unit of Q that individual i is willing to pay. Let marginal cost of improving air quality be 5Q. What is the socially optimum level of air quality? (A) Q = 5 (B) Q = 3· 33 (C) Q = 6· 25 (D) None of the above

Also written as: Suppose there are three people in a district with different marginal benefits from improved air quality. The marginal willingness to pay for improved air quality for two of them is given by p_i = 20 - Q, i = 1, 2 and for the third person is given by p_3 = 10 - Q, where Q refers to the level of air quality, and p_i refers to the price per unit of Q that individual i is willing to pay. Let marginal cost of improving air quality be 5Q. What is the socially optimum level of air quality?

Market failure, externalities and public goods has come up 114 times in 7 exams since 2006.

What this question tests

This question is on Public goods and the classification of goods, part of Market failure, externalities and public goods in Microeconomics.

Goods that are non-rival and non-excludable, and the condition for providing them efficiently.

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Question from the JNU SIS 2018 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.