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Homework answers / question archive / Rajiv and Yakov are considering contributing toward the creation of a public park
Rajiv and Yakov are considering contributing toward the creation of a public park. Each can choose whether to contribute $300 to the public park or to keep that $300 for a cell phone. Since a public park is a public good, both Rajiv and Yakov will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.90 of benefit. For example, if both Rajiv and Yakov choose to contribute, then a total of $500 would be contributed to the public park. So, Rajiv and Yakov would each receive $540 of benefit from the public park, and their combined benefit would be $1,080. Since a cell phone is a private good, if Rajiv chooses to spend $300 on a cell phone, Rajiv would get $300 of benefit from the cell phone and Yakov wouldn't receive any benefit from Rajiv's choice. If Rajiv still spends $300 on a cell phone and Yakov chooses to contribute $300 to the public park, Rajiv would still receive the $270 of benefit from Yakov's generosity. In other words, if Rajiv decides to keep the $300 for a cell phone and Yakov decides to contribute the $300 to the public project, then Rajiv would receive a total benefit of $300 + $270 = $570, Yakov would receive a total benefit of $270, and their combined benefit would be $840. Which of the following yields the greatest combined benefits to Rajiv and Yakov? When neither Rajiv nor Yakov contributes to the public park When both Rajiv and Yakov contribute to the public park When Rajiv contributes to the public park and Yakov doesn't, or vice versa Now, consider the incentive facing Rajiv individually. As shown previously, if both Rajiv and Yakov contribute to a public good, Rajiv receives a benefit of $540. On the other hand, if Yakov contributes to the public park and Rajiv does not, Rajiv receives a benefit of $570. Complete the right-hand column of the following table, which shows the individual benefits of Rajiv. Hint: You are not required to consider the benefit of Yakov. Yakov Contribute Doesn't contribute Contribute $540,-- $ Rajiv Doesn't contribute $570,-- $
PLEASE ANSWER THE FOLLOWING 2 ASWELL BY CHOOSING THE CORRECT OPTION. THANK YOU <3
1) If Yakov decides to contribute to the public park, Rajiv would maximize his benefit by choosing (not to contribute////to contribute) to the public park. On the other hand, if Yakov decides not to contribute to the public park, Rajiv would maximize his benefit by choosing (not to contribute////to contribute) to the public park.
2) These results illustrate (the creation of a positive externality//// why markets are efficient//// the free-rider problem//// the Tragedy of the Commons).
If both Rajiv and Yakov contribute towards public park the their combined benefit is $1,080.
If one of them contribute towards public park while other does not then their combined benefit is $840.
Thus,
The following yields the greatest combined benefits to Rajiv and Yakov -
When both Rajiv and Yakov contribute to the public park.
Following is the complete table -
1.
As the above table shows, if Yakov decides to contribute to the public park, Rajiv would maximize his benefit by choosing not to contribute to the public park. On the other hand, if Yakov decides not to contribute to the public park, Rajiv would maximize his benefit by choosing not to contribute to the public park.
2.
These results illustrates the Free rider problem.
