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Contrast the efficincy of market provision of public and private goods. what is the fundamental difference?...

Contrast the efficincy of market provision of public and private goods. what is the fundamental difference? how do we measure the value for a market good? how do we measure value for a public good?

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Answer #1

Market provision of public good is inefficient because in market Good is produced when WTP=Marginal cost. This is efficient for private good but it is inefficient for public goods.

in case of public good, sum of marginaL benefit for all consumers=marginal cost of a public good.

value of market good for public good is the vertical summation of individual demand curve. I.e. In simple worlds we will ask the marginal value of all consumer for a public good and we will add them all to get the market value of public good.

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