Question

A local college is deciding whether to conduct a campus beautification initiative that would involve various projects, such as planting trees and remodeling buildings, to make the campus more aesthetically pleasing. For the students of the college, the visual appearance of the campus is (rival; non-rival) and (excludable; non-excludable). Thus, the visual appearance would be classified as a public good. Suppose the college administrators estimate that the beautification initiative will cost $8,160. To decide whether the initiative should be undertaken, administrators conduct a survey of the college's 490 students, asking each of them their willingness-to-pay for the beautification project. The average willingness-to-pay, as revealed by the survey, is $17. The benefit of the beatification initiative, as suggested by the survey, is $________. Because the estimated benefit is (greater; less) than the cost, the college administrators (should not; should) undertake the beautification initiative.

Answer 1

The visual appearance of the campus is a public good that is nonexcludable and non-rival. The benefit of the beautification initiative, as revealed by the survey, is $8,330. Based on the estimated benefit being greater than the cost, the college administrators should undertake the initiative.

Step-by-step explanation:

A public good has two key characteristics: it is nonexcludable and non-rival. Nonexcludable means that it is costly or impossible for one user to exclude others from using the good. Non-rival means that when one person uses the good, it does not prevent others from using it.

In this case, the visual appearance of the campus is nonexcludable because it is difficult to prevent students from enjoying the beautification projects, and it is non-rival because one student's enjoyment of the campus does not reduce the enjoyment for other students.

To determine the benefit of the beautification initiative, the administrators conducted a survey of the students' willingness-to-pay. The average willingness-to-pay, as revealed by the survey, is $17. Since there are 490 students, the total benefit of the initiative can be calculated by multiplying the average willingness-to-pay by the number of students: $17 * 490 = $8,330.

The estimated benefit of $8,330 is greater than the cost of $8,160, so the college administrators should undertake the beautification initiative.