Question

A local college considers a campus beautification initiative, a nonrival and nonexcludable public good. The estimated cost is $38,080, and the average willingness to pay per student is $16. If the benefit exceeds the cost, the college should undertake the initiative. Inaccurate data on willingness to pay may result from which scenario(s)?

a. Students believing funds won't be spent elsewhere
b. Students expecting eventual charges matching their willingness to pay
c. Both a and b
d. None of the above

Answer 1

Inaccurate data on willingness to pay for the campus beautification initiative at the local college may result from students' beliefs about fund allocation and expectations about charges.

Step-by-step explanation:

Inaccurate data on willingness to pay for the campus beautification initiative at the local college may result from two scenarios:

1. Students believing that the funds won't be spent elsewhere. This assumption could lead to an overestimation of their willingness to pay, as they may think that their contributions are the sole source of funding.
2. Students expecting eventual charges matching their willingness to pay. If students believe that the college will charge them an amount exactly equal to their willingness to pay for the initiative, they may overstate their willingness to pay to ensure that the cost aligns with their expectations.

The correct answer is c. Both a and b.