Each year around July 4 the town of Flagston has a controversy over how big a fireworks display they should have on the holiday. The three citizens have the demand functions for fireworks that are shown here. The cost per firecracker is $18. Elmer has the demand function P = 20 - Q. Ethel's demand equation is P = 12 - .6Q, and Edith has the demand P = 8 - .4Q. If the citizens got together for a city referendum on the issue, and each voted for an amount of fireworks, knowing that each would pay their share (1/3) of the cost, how would the vote come out in a majority rule situation? Why is this not the socially efficient amount?
What will be an ideal response?
Elmer would vote for 14, Ethel for 10, and Edith for 5. Thus the majority prefer 10 but not 11, so the amount provided is 10. The optimal number of 11 is not reached here because the intensity of the feelings cannot be effectively registered in a simple yes-no vote. Elmer would be willing to pay Ethel more than it would take to get her to vote for the 11th firecracker, but buying votes is considered to be corruption in such a patriotic town.
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