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.

The calculation of the benefit of the beatification initiative relied on the ability of the administrators to accurately capture the true willingness-to-pay of each student.

Which of the following scenarios would cause the survey used by the college administrators to yield misleading willingness-to-pay data? Check all that apply.

___Students believe they will eventually be charged their willingness-to-pay

___An equal number of male and female students were surveyed.

Answer 1

The visual appearance of the campus is classified as a public good because it is non-rival and non-excludable. The college should proceed with the beautification initiative as the benefit exceeds the cost. Distorted willingness-to-pay data can arise if students believe they'll be charged or due to the free rider problem.

Step-by-step explanation:

The visual appearance of the campus is non-rival and non-excludable. Thus, the visual appearance would be classified as a public good. If the average willingness-to-pay for the beautification project is $17 per student, with 490 students, the total benefit is 490 students × $17/student = $8,330.

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

Several scenarios could lead to distorted willingness-to-pay data in the survey: if students believe they will eventually be charged their willingness-to-pay amount leading to them undervaluing their true willingness, or if they believe their payment may not influence the outcome and hence avoid revealing their true preferences due to the free rider problem.

The inclusion of equal numbers of male and female students is irrelevant to the willingness-to-pay data so long as the student body's demographics are fairly represented.