+1 862 207 3288 1. Consider a small community made up of two individuals, Joseph and Michael. The local hardware store is
selling table lamps at a price of 6 dollars per lamp. Joseph’s demand for lamps is given by:
qJ = (18 0 − 3P 0 P≤ ≥P < 6, 6 (1)
where P denotes the price per lamp. Michael’s demand for lamps is given by
qM = (15 0 − 3 2 P 0 P≤ ≥P < 10 10 (2)
(a) Graph the aggregate demand for lamps, along with the individual demand curves.
(b) Derive the total number of lamps that will be purchased.
2. Suppose that instead of table lamps, the grocery store is selling street lamps, to be installed around the
community. These street lamps will be accessible to all (i.e., non-excludable) and any one person’s use of
the street lamps will not diminish their usefulness to anyone else (i.e., they are non-rival in consumption).
Assume that the cost of the street lighting is the same as for the table lamps (i.e., P = 6) and that, just like
for the table lamps, Joseph’s demand for street lighting is given by:
qJ = (18 0 − 3P 0 P≤ ≥P < 6, 6 (3)
and Michael’s demand for street lighting is given by
qM = (15 0 − 3 2 P 0 P≤ ≥P < 10 10 (4)
(a) Graph the marginal benefit to the community from street lighting, along with each individual’s marginal
benefit from street lighting.
(b) Allowing for free-riding, how much street lighting would be provided if individuals in the community
were asked to provide it?
(c) What would be the efficient amount of street lighting for the community?
(d) How would your answer to part (c) change if each street light generated a negative externality in the
form of light pollution, with a marginal externality cost to the community of MCext = 1?
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