Question

Assume that Abby, Ben, Clara, Joe, and Matt are the only citizens in a community. A proposed public good has a total cost of $1,000. All five citizens will share an equal portion of this cost in taxes. The benefit of the public good is $220 to Abby, $210 to Ben $210 to Clara, $180 to Joe, and $120 to Matt. Who are likely to vote in favor of this proposal? A. Ben, Clara, and Joe B. Abby, Ben, Clara, and Joe C. Ben, Clara, Joe, and Matt D. Abby, Ben, and Clara

Answer 1

Answer:

(D) Abby, Ben, and Clara

Explanation:

Given that each of the five citizens will share the cost of the public good equally (that is, $200 each), citizens who derive benefits greater than $200 are likely to vote in favor of an equal share of the cost since this option will result in a net benefit of the public good to them.

For instance, net benefit to Abby = $220 benefit - $200 cost = $20 net benefit.

On the other hand, citizens who derive benefits worth less than $200 are less likely to vote in favor of an equal share since an equal share will result in a net loss to them.

For instance, net loss to Matt = $120 benefit - $200 cost = $80 net loss.

Therefore, Abby ($220), Ben ($210) and Clara ($210) are likely to vote in favor of a proposal for an equal share of the cost, since the benefit they derive is greater than the cost in an equal share $200.