Question

Artville is deciding whether to purchase a new statue for the center of town. The statue will cost the city $17,000 and will only be purchased if the costs are covered. The city is asking for households to help cover the cost of the statue, but households are not forced to contribute.
Required:
a. If households are asked to contribute $5 each to help cover the cost of the statue, how many households will need to contribute?
b. If the population of Artville is 4,000 households, of which 3,000 households are expected to free ride, will the city be able to afford the statue if it charges each household $14?

Answer 1

Answer: a. $3,400 households

b. No.

Explanation:

a. The cost of the statue is $17,000 and each household is asked to contribute $5 to help cover the cost. To find out how many families one can divide the amount needed by the amount asked of the households,

= 17,000/5

= 3,400 households

If 3,400 households each pay $5 then the town of Artville will be able to afford the statue.

b. This question speaks to a social problem referred to a the Free-rider problem. This is when people in society benefit from something without contributing fairly towards the benefit they are accruing from the thing. 3,000 households out of 4,000 are expected to be free-riders. This means that only 1,000 will cover the cost of the statue.

If those 1,000 households pay the $14 required, the town would only raise,

= 1,000 * 14

=$14,000

$14,000 is less than the cost of the statue which is $17,000 and so the town of Artville will have to do without a statue as they simply cannot afford one.