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agasfer [191]
4 years ago
14

National defense is a good that is nonexcludable and nonrival in consumption. Suppose that instead of national defense being pai

d for with tax dollars national defense is paid for by voluntary contributions from (potentially) all individuals within Latvia. Ernest, who is a Latvian citizen, must decide whether he wants to contribute to the national defense budget. Further, suppose that there are a total of 10 citizens, including Ernest. For the optimal amount of safety, each citizen should pay $ 10. Every $ 1 contributed (by anyone) to the national defense leads to increased security, which each person values at $ 0.30. This means that every dollar spent on defense is worth $ 3.00 to Latvia as a whole. How much does Ernest personally value the increase in national defense when he contributes $ 10 to the defense fund?
Business
1 answer:
MrRissso [65]4 years ago
8 0

Answer:

Explanation:

It is given that each person values the increase at $0.30

This means that when Ernest contributes $10 to the defense fund, his valuation is 10*0.03 = 3$

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