Consider the market for trees in a public park. These trees are a public good that give benefits to multiple groups of people, as described below. Each Marginal Willingness to Pay curve represents the aggregation of all the individuals in that group, and those groups make decisions collectively. Additionally, the cost of planting trees is given. Consider Q to be the number of trees in the park. Note that no one is ever worse off from additional trees.   Arborists: MWTP = 2000 – 5Q                                  Total WTP = 2000Q - 2.5Q2 Environmentalists: MWTP = 1500 – 10Q                 Total WTP = 1500Q – 5Q2 Casual Park Visitors: MWTP = 800 – 10Q                Total WTP = 800Q – 5Q2 Park Haters: MWTP = 500 – 50Q                              Total WTP = 500Q – 25Q2 MC = 1400                                                                  Total Cost = 1400Q   (a) If the government does not intervene into the market, how many trees will be planted? (b) What is the socially optimal number of trees?

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  1. Consider the market for trees in a public park. These trees are a public good that give benefits to multiple groups of people, as described below. Each Marginal Willingness to Pay curve represents the aggregation of all the individuals in that group, and those groups make decisions collectively. Additionally, the cost of planting trees is given. Consider Q to be the number of trees in the park. Note that no one is ever worse off from additional trees.

 

Arborists: MWTP = 2000 – 5Q                                  Total WTP = 2000Q - 2.5Q2

Environmentalists: MWTP = 1500 – 10Q                 Total WTP = 1500Q – 5Q2

Casual Park Visitors: MWTP = 800 – 10Q                Total WTP = 800Q – 5Q2

Park Haters: MWTP = 500 – 50Q                              Total WTP = 500Q – 25Q2

MC = 1400                                                                  Total Cost = 1400Q

 

(a) If the government does not intervene into the market, how many trees will be planted?

(b) What is the socially optimal number of trees?

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