The table below shows the marginal benefit and marginal cost of purchasing an additional unit of 3 different public goods. Marginal benefitMarginal costTotal spending on the public goodPublic good 1$20$20$1,500Public good 2$15$25$800Public good 3$10$5$700 Total economic surplus could be increased by reallocating total spending away from
A. public good 2 toward public good 3.
B. public good 2 toward public good 1.
C. public good 1 toward public good 3.
D. public good 3 toward public good 1.
Answer: A
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Why is it important that consumers respond differently to temporary and permanent increases in their incomes?
A) This implies that consumption will be highly sensitive to temporary changes in income. B) This implies that a temporary tax cut will have a larger effect than a permanent one on current consumption. C) this tells us that the timing of income increases for consumers is irrelevant. D) this has implications for the relative effects of temporary and permanent tax cuts.
Corporations have a separation and control problem because
A) owners and managers frequently have different incentives. B) most of the profits are reinvested. C) the shareholders control the firm. D) taxes are paid only by the board of directors.
Stating that income elasticity of demand for potatoes equals 0.15 is equivalent to stating that if income
A) decreases by 10 percent, potato purchases decrease by 1.5 percent. B) increases by 10 percent, potato purchases increase by 15 percent. C) decreases by 1.5 percent, potato purchases decrease by 10 percent. D) increases by 15 percent, potato purchases decrease by 10 percent. E) none of the above
The dual mandate does NOT include which of the following?
A. maximum employment B. stable prices C. the value of the dollar