Why may majority voting produce economically inefficient outcomes? Give a numerical example that leads to the rejection of a public good

Question

Please provide the best answer for the statement.

Answer 1

The problem with majority voting is that it does not take into account the strength of preferences for or against a choice. As a consequence, economically inefficient outcomes may result. For example, assume there are only three voters on a tax issue, such as more funding for public schools. The perceived benefit for two of the voters might be only $100 because they have no school-aged children whereas the cost in terms of increased taxes might be $200 each. A third voter might estimate the benefit to be $600 because that voter has school-aged children. The cost for each voter in terms of increased taxes is $200 each. In total, the benefits are $800 for the three voters while the costs are $600. In this case, the benefits outweigh the cost for the society of three when the strength of preferences as measured in dollars is taken into account. However, for two of the voters (a majority), the costs outweigh the benefits and they vote against the school funding increase and defeat the measure.