Assume that a small town uses a
referendum to overcome the free ridership problem and determine how its
residents might value a new water filtration system for its public water
supply. The voting results are aggregated by the town’s two districts, yielding
the following demand estimates:
District 1: Q=160-20P1
District 2: Q=60-5P2
Where Q is the expected percent of
copper to be filtered by the system and P is the price in millions of dollars.
a. Based
on the estimates, determine the town’s market demand for this public good, the
new filtration system.
b. If
the market supply for the system were P=6+ 0.15Q, what would be the equilibrium
price and quantity for the town?
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