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Question: a village of 20 people is deciding how much openspace...

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  1. A village of 20 people is deciding how much open-space land to acquire. Because of differences in preferences, there are two types of demand functions for open-space land amongst the citizens. In particular, 10 of the people have a demand function given by P = 10 – Q, while the remaining 10 have the demand function P = 8 – 2Q, where Q is quantity of open-space in acres and P is price in dollars.
    1. Since the open-space land is both non-excludable and non-rival, it can be considered a public good. What is the equation for the market demand function for open-space land? Depict the market demand function graphically.
    2. Describe why aggregation of individual demand functions differs for public goods compared to private goods. (why not how they are aggregated differently)
    1. If the marginal cost of an acre of open-space is $40, what is the socially optimal quantity of open-space land? In other words, what quantity of land maximizes net social benefits (social benefit – social cost). Illustrate this point on the graph that you drew in part (a)
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