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Showing posts with label social demand. Show all posts
Showing posts with label social demand. Show all posts

9/24/11

Finding demand curves for public goods, and social demand curves

20:15
Finding demand curves for public goods, and social demand curves
This post goes over a public goods question, where the individual demand curves need to summed up in order to get a legitimate social demand curve.  The reason we need a social demand curve is because everyone benefits from the good in question, so if each consumer only buys until they are satisfied, then they are ignoring the potential benefits to others in the market.

Four towns share a common water source. By buying open land along the watershed (area from which the water flows) the towns can preserve its purity from sewage, road runoff, and such. The land demand schedule for each town based on water treatment costs saved can be expressed as

P = $34,000-10Qd

where Qd is acres purchased and P is the price the town would be willing to pay.

a. If the cost of land is $30,000 per acre, how much land will be purchased if each town operates independently? How much if they form a joint commission for land purchases? Graph the different possibilities. (If the economic theory is not clear, imagine representatives of the four towns sitting around a table, discussing the costs and benefits of purchasing different amounts of land.)