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Many people in the small town of Econville have complained that there is no park for...

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Economics

  1. Many people in the small town of Econville have complained thatthere is no park for children to use afterschool. There are 20households in the town, 10 who have children and 10 who do not. Thehouseholds with children value the park being built at $100 eachwhile the other households value it at $20 each. The town estimatesthat the cost of building a park is $600. All households earn thesame income.

    1. (a) Would describe the park as a public good? Explain.

    2. (b) The first proposal is fund the park with a flat tax. What isthe minimal tax per household required to build the park? Who willand who will not support such a tax and will the park be built?

    3. (c) A second proposal is a tax that only applies to thehouseholds with children. What tax per household will ensure thatthe park is built? Who will and who will not support such a tax?Why?

    4. (d)Athirdproposalisataxpaymentthatisproportionaltothebenefiteachhouseholdreceives from the park. In this proposal, how much will eachhousehold be expected to pay? Who will and who will not supportsuch a tax? Why?

    5. (e) Evaluate the three policies listed and state which you willchoose and why.

Answer & Explanation Solved by verified expert
4.2 Ratings (740 Votes)
a Yes the park would be a public good This is because the people of the town are free to use it irrespective of whether they have paid for it or not b The cost of setting the park is 600 and there are 20 households So each of them would have to pay a flat tax of 6002030 If the tax is 30 the 10 households    See Answer
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