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# Drawing the society's demand curve for the public good

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The table attached shows the willingness to pay for various units of a public good for the only two individuals in a society. The willingness to pay is the willingness to pay per unit of the public good. For example, person 1 is willing to pay \$55 per unit of the public good for two units. To put it another way, if the price to person 1 of two units of the public good is \$55, then person 1 would want to purchase 2 units of the public good. (I f you were to plot person 1's willingness to pay for the public good with quantity on the horizontal axis and willingness to pay on the vertical axis, it would look like a demand curve, and that is exactly what it is.) Fill in the column "Society's willingness to pay." Then draw a graph of Society's demand for the public good.

Quantity of the public good Willingness to pay of person 1 Willingness to pay of person 2 Society's willingness to pay
1 65 35
2 55 25
3 45 15
4 35 5
5 20 0

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#### Solution Preview

Please refer attached file for graph.

Refer to given table, let us assume that one unit of public good is produced. Because of non-rivalry, Person 1's consumption of the good does not preclude Person 2 from also consuming it, and vice-versa. So, both consume the good, and neither volunteers to pay for it. But from the above table, we find that these two persons would be ...

#### Solution Summary

Solution determines the society's demand curve for the public good in the given case.

\$2.19

## Air Bags and Public Safety

Since 1997, at least 3 million vehicles have been recalled due to air bag related problems. Of these, roughly half were due to problems of the sort that only time and road experience are likely to reveal.

Automobile air bags were originally designed as supplemental safety devices to be used along with a combination shoulder- and lap-seat belt. For twenty years the auto manufacturers argued that, after looking at the costs, passengers were better off with just seat belts. The activists hissed with contempt at this assertion ignoring the industry's voluntary installation of the collapsible steering wheel, the padded dash, and the high-penetration windshield. They, maintaining that the auto companies were not interested in selling safety, insisted on a federal mandate. They got it in Standard 208 which required the installation of air bags to protect an unbelted, 170-pound man in a head on collision (my emphasis).

Seat belt usage went from 10 percent in the early 1970s to 70 percent in the 1990s. What group was the most likely nonuser of seat belts? Teenagers and young adults, that's who.

There is a small problem with airbags - they are dashboard-mounted bombs that kill children and small adults in accidents they would otherwise walk away from. As Ward's Auto World, an industry bible once put it, "For the sake of protecting Beavis and Butt-Head, we have put infants, young children, and small adult women at risk."

To a large extent, the problem is caused by the precautionary principle that is typically applied to R & D and commercial products that can actually increase risk. This principle focuses solely on the possibility that new technologies can pose extreme or unmanageable risks, even after considerable testing has occurred. The fact is that while new technologies introduce new risks, most offer net benefits. Most advocates of precautionary regulation are more anti-business and anti-technology than they are pro-safety.

Sources: Holman W. Jenkins, Jr., "Cigarettes and Air Bags: Won't the Do-Gooders Ever Learn?" The Wall Street Journal, June 10, 1997, p. A19; Sam Kazman, "Air bag-Related Recalls Demonstrate the Need for Real-World Testing As a Prerequisite for Any Air Bag Mandate Whatsoever," www.cei.org, February 7, 2000; and Henry I. Miller and Gregory Conko, "Are We Too Safe for Our Own Good: Radical Environmental Groups Have Prevailed upon Governments to Assail and Intimidate Industry," Los Angeles Times, June 1, 2001.

ANSWER THE QUESTIONS BELOW IN 210 WORDS ( total for the 5 questions, not each question)

1. What kind of goods would an economist call air bags?

2. According to the article, is this a failure of the market or a failure of government?

3. Is this an example of a price ceiling or a price floor?

4. If you were drawing a supply and demand graph of this market, would either of the curves move, and if so which one?

5. Should air bags be outlawed

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