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5. Majority rule and efficiency

Bob, Cho, Eric, Ginny, and Yakov share a five-bedroom house and
are all huge New York Yankees fans. The only way they can watch
every away game is by getting satellite TV service. Since the TV is
located in their living room, once they have satellite service, the
service has the characteristics of a public good: it is nonrival
and nonexcludable. The following table shows the benefit (per
month) that each roommate receives from the service. Note that the
average benefit from the service is $50 per person.

Roommate Benefit
(Dollars)
Bob 10
Cho 35
Eric 60
Ginny 70
Yakov 75

It is efficient for the roommates to buy the satellite TV
service if it doesn’t cost more thanper month.

Suppose the roommates decide to vote on whether to buy the
satellite TV service under majority rule. In addition, they agree
that if they get the service, the cost will be split equally among
all the roommates, whether or not they voted in favor of the
service.

A majority of roommates will vote to buy the service as long as
it doesn’t cost more than per month.

Which statement best illustrates the concept of the median voter
model in this example?

Because two roommates receive more benefit than Eric does, and
two roommates receive less benefit than Eric does, Eric’s is the
critical vote.

Because Cho’s benefit is the same as the average benefit, Cho’s
is the critical vote.

Because Bob only receives $10 worth of benefit, she shouldn’t
have to pay.

Because Yakov’s benefit is the greatest, he should have more say
in the matter than the others.

If the price of satellite TV service is $275 (or $55 per
roommate), then under majority rule:

They will buy the service, even though it is not efficient to do
so.

They will not buy the service, even though it would be efficient
to buy it.

They will buy the service, which is the efficient outcome.

Making social decisions by majority rule in an economically
efficient outcome.