Answer to Question #139282 in Macroeconomics for DANNY HOXOBEB

Question

There are twenty homes on Mukong Road. The installation of a streetlight would increase the value of each by N$10. The streetlight costs N$100 to install. Is the street light a public good? Why or why not? Should it be installed? Why? Who is more likely to install it the government or the property owners? Why? Would your answer be different if one person owned all the houses? (10 marks)

Answer 1

Public good is a good that is both non-excludable and non-rivalrous. So, the street light is a public good. It should be installed, as the total benefit of 20×10 = N$200 is higher than the total cost of N$100. The government is more likely to install it, because nobody will pay the total cost of N$100 alone to receive a N$10 benefit. If one person owns all the houses, then he or she is more likely to install the street light.