Answer to Question #118259 in Economics for michael

Question

Ansaful is a small community in the Winneba Municipality and the residents want to build a
market facility. The total cost of the project is GHC 10,000. Out of this figure, the Christian
population in the community is willing to contribute GHC 5,000 while the Muslim population in
the community is willing to contribute GHC 3,000. However, their budget is inadequate to cover
the cost of the project.
a) What type of good does the market facility in question represent? Explain [3 marks]
b) State the prediction of the economic model to the above problem. [3 marks]
c) Explain whether the model in b) is adequately justified with reference to the extract. [3
marks]
d) Determine the magnitude of the budget deficit of the project. [2 marks]
e) Explain two ways in which the budget deficit of the project can be financed. [2 marks]
f) Outline two practical challenges you may encounter using this model. [2 marks]

Answer 1

a) The market facility in question represents public good.

b) According to the above problem the marginal private cost is lower than marginal social cost, that's why the good is underproduced.

c) The model in b) is adequately justified.

d) The budget deficit of the project is going to increase.

e) The budget deficit of the project can be financed by the government or by taking a loan.

f) The two practical challenges you may encounter using this model is how to manage such projects and how to finance public goods.