Twenty neighbours on a street each value street repairs at €3,000, and the repair costs €40,000. Which statement is true?
Correct answer A. It is efficient for the government to tax each resident €2,000 and repair the road
Explanation
Total benefit is 20 × €3,000 = €60,000, which exceeds the €40,000 cost, so repairing is efficient; a €2,000 tax each covers the cost and avoids free riding.
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