Suppose that in a small town with three neighborhoods, the town council is considering additions to the police force. It asks representatives of each neighborhood to submit willingness to pay (WTP) schedules. The schedules below give each neighborhood's maximum willingness to pay for each additional police officer. Determine the town's total demand curve for new police officers. In the space below, prepare each letter and your answer.
Neighborhood 1 Neighborhood 2 Neighborhood 3 Town
Willingness to Pay New Police Officers Willingness to Pay New Police Officers Willingness to Pay New Police Officers Total Willingness to Pay New Police Officers
$20,000 1 $25,000 1 $40,000 __________
15,000 2 20,000 2 25,000 _________
10,000 3 18,000 3 10,000 __________
5,000 4 15,000 4 7,000 __________
2,000 5 9,000 5 1,000 __________
If it costs the town $55,000 for each additional police officer, the town should hire ________ new police officers.
If each neighborhood believes that the other neighborhoods will cover the cost of additional police protection, they would be unwilling to pay. Because of this______________ problem, the private sector would __________________(underproduce /overproduce) police protection.
The problem with police protection is that it is a public good and hence is characterized by ________________ and ____________________.