Question

A public good has a marginal cost of $100 per unit. There are four people in the population who have marginal private benefits from the public good given by 50−Q, 100−3Q, 25−Q, and 65 − 2Q respectively.

a) What is the efficient amount of the public good? Explain your answer, and explain what makes this different from a private good.

b) If you didn’t know how each consumer valued this public good, what issues might you run into if you tried to find out?

c) To what extent do you think ideas or knowledge (for example, as a result of research) fit the definition(s) of being non-excludable and non-rival? What are some possible public policy implications of your answer?

Answer 1

a)

The vertically summing up:

50−Q+100−3Q+25−Q+65 − 2Q

P= 240- 6Q

P= MC.

240-6Q = 100

140 = 6Q

Q = 140/6

= 23.33.

The private goods are horizontally added.

b)

There will arise the problem of free rider. Each consumer would understate the demand for the public good. Each consumer try to become a free rider.

C)

Here, the public good is provided by the government as the the demand is not clear and market forces do not work here. Those who do not pay for the good cannot be debarrred from enjoying the benefit of public good. Benefits of such good can be enjoyed by many people simultaneously.