Skip to content
We use only essential cookies to keep you signed in and remember your preferences. See our Cookie Policy.
TestStop
MocksPracticeResourcesIndiaBlogPricing
Sign in
Questions › JNU › JNU SIS 2018 › Q31
2 marks, −1Microeconomics › Market failure, externalities and public goods › Free riding and preference revelationHardabout 3 min

JNU SIS 2018 Question 31: Market failure, externalities and public goods

Suppose Amit's true benefit from a public good is 25\frac{2}{5}52​, while Salim's true benefit is 1. The cost of building of the public good is 1 and is to be shared equally by Amit and Salim, if it is built. The government decides to build the bridge if the net social benefits based on Amit and Salim's reported values of their respective benefits is non-negative. The total benefit from the public good is the sum of individual benefits.

Which of the following is true?

Tap an option to check your answer.

Answer and worked solution

Checking your account…

Plain-text version

Suppose Amit's true benefit from a public good is 2/5, while Salim's true benefit is 1. The cost of building of the public good is 1 and is to be shared equally by Amit and Salim, if it is built. The government decides to build the bridge if the net social benefits based on Amit and Salim's reported values of their respective benefits is non-negative. The total benefit from the public good is the sum of individual benefits. Which of the following is true? (A) The socially optimal decision based on truthful reporting is to build the public good, while Amit has an incentive to misreport his true benefit (B) The socially optimal decision based on truthful reporting is not to build the public good, while Amit has an incentive to report his true benefit (C) The socially optimal decision based on truthful reporting is to build the public good, while Salim has an incentive to misreport his true benefit (D) The socially optimal decision based on truthful reporting is not to build the public good, while Salim has an incentive to misreport his true benefit

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

What this question tests

This question is on Free riding and preference revelation, part of Market failure, externalities and public goods in Microeconomics.

Why people understate their value for public goods, and mechanisms that elicit the truth.

TestStop has 9 past-paper questions on this subtopic.

Practise Market failure, externalities and public goodsMore on Free riding and preference revelation

Similar questions from other papers

  • CUET-PG 2026 · Q7The efficient level of output is the level at which price of product is _ marginal social cost (MSC).
  • GATE 2026 · Q32Which one of the following statements regarding externality is TRUE?
  • IIT JAM 2026 · Q19Which one of the following statements is CORRECT in the context of positive consumption externality?
  • UGC-NET 2026 · Q51Key assumptions of Coase theorem are: A. Zero transaction coast and two agents to each bargain B. Competitive market for legal entitlements and perfect knowledge about…
  • CUET-PG 2025 · Q6Which of the following is incorrect about the problem of externalities?

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