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Figure: Market Failure
-(Figure: Market Failure)Use Figure: Market Failure.Suppose that the supply curve represents the marginal cost of providing streetlights in a neighborhood where only two people,Ann and Joe,reside.The demand curve represents the marginal benefit that Ann receives from the streetlights.Suppose that Joe's marginal benefit from the streetlights is a constant amount equal to the vertical distance A-C.If Ann is the only person to pay for the streetlights,how many lights will be provided?
A)0
B)E
C)F

Question

Use the following to answer question:
Figure: Market Failure 
-(Figure: Market Failure)Use Figure: Market Failure.Suppose that the supply curve represents the marginal cost of providing streetlights in a neighborhood where only two people,Ann and Joe,reside.The demand curve represents the marginal benefit that Ann receives from the streetlights.Suppose that Joe's marginal benefit from the streetlights is a constant amount equal to the vertical distance A-C.If Ann is the only person to pay for the streetlights,how many lights will be provided?
A)0 
B)E 
C)F

Quizplus · Accepted Answer

Since only Ann is paying for the streetlights, the market equilibrium point is where her marginal benefit (demand curve) intersects with the supply curve. This occurs at point F, where 2 streetlights will be provided. Going further to the right, the marginal cost of providing additional streetlights is higher than Ann's marginal benefit and hence it is not efficient to provide more than 2 streetlights.

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