Suppose we are considering fire hydrants in a small neighborhood. For simplicity, assume that only two...

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Suppose we are considering fire hydrants in a small neighborhood. For simplicity, assume that only two individuals live in this neighborhood; Bob and Nancy. Once the fire hydrants are supplied by the city, they are automatically available to both Bob and Nancy. Thus, we can view the fire hydrants as public goods. The table below summarizes Bob and Nancy's individual marginal willingness to pay for fire hydrants. Number of Fire Hydrants 12345 2 3 Bob's MWTP $480 400 320 240 160 Nancy' MWTP $80 60 40 20 0 a. Use this information to construct the market demand curve for fire hydrants reflecting the true marginal willingness to pay as a market. Graph this demand curve clearly marking out all points and values. b. Suppose that one fire hydrant is provided in the neighborhood. Bob and Nancy are both being charged a municipal tax of $300 each to pay for the hydrant. Would Bob or Nancy (or both) be considered a 'free rider'? Explain your answer. Suppose we are considering fire hydrants in a small neighborhood. For simplicity, assume that only two individuals live in this neighborhood; Bob and Nancy. Once the fire hydrants are supplied by the city, they are automatically available to both Bob and Nancy. Thus, we can view the fire hydrants as public goods. The table below summarizes Bob and Nancy's individual marginal willingness to pay for fire hydrants. Number of Fire Hydrants 12345 2 3 Bob's MWTP $480 400 320 240 160 Nancy' MWTP $80 60 40 20 0 a. Use this information to construct the market demand curve for fire hydrants reflecting the true marginal willingness to pay as a market. Graph this demand curve clearly marking out all points and values. b. Suppose that one fire hydrant is provided in the neighborhood. Bob and Nancy are both being charged a municipal tax of $300 each to pay for the hydrant. Would Bob or Nancy (or both) be considered a 'free rider'? Explain your answer.

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