Author Question: Why is it rational for individuals to be ignorant about public goods but not about private goods? ... (Read 181 times)

tatyanajohnson · **on:** Jun 29, 2018

Why is it rational for individuals to be ignorant about public goods but not about private goods?

What will be an ideal response?

Question 2

The table above shows the amounts of cloth and cheese that China and Pakistan can produce in an hour. Which country has the comparative advantage in cloth and which country has the comparative advantage in cheese?

What will be an ideal response?

meganlapinski · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

In the case of a private good, the individual enjoys all of the benefits and pays all of the costs so it is important to gather product information. In the case of a public good, the individual receives only a fraction of the benefits and pays only a fraction of the costs. Moreover, it is uncertain whether one individual's gathering information will have any impact on the public goods provided anyway.

Answer to Question 2

In China, to produce 8 cloths has an opportunity cost of 16 cheeses, so the opportunity cost of 1 cloth is (16 cheese)/(8 cloths) = 2 cheeses per cloth. In Pakistan, to produce 4 cloths has an opportunity cost of 12 cheeses. Hence the opportunity cost of 1 cloth is (12 cheeses)/(4 cloths) or 3 cheeses per cloth. Because China's opportunity cost of a cloth is lower, China has the comparative advantage in producing cloth.
In China, to produce 16 cheeses has an opportunity cost of 8 cloths, so the opportunity cost of 1 cheese is (8 cloths)/(16 cheeses) = 1/2 cloth per cheese. In Pakistan, to produce 12 cheeses has an opportunity cost of 4 cloths. Hence the opportunity cost of 1 cheese is (4 cloths)/(12 cheeses) or 1/3 cloth per cheese. Because Pakistan's opportunity cost of a cheese is lower, Pakistan has the comparative advantage in producing cheese.