As we will see later the demand curve for a public

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Unformatted text preview: 1onal defense Clean environment Fireworks Lighthouses Public safety (police, fire, animal control) Knowledge Vo1ng / par1cipa1ng in poli1cal process Volunteer work / charitable contribu1ons 3 Demand Curve for a Public Good Suppose that society has two individuals with the following demand (or marginal benefit) curves for a public good Then, because of non-rivalry, the marginal social benefit of a given quan1ty is the sum of the marginal benefits of both individuals at that quan1ty (ver1cal summa1on) Note: the market demand curve for a private good is the sum of the quan11es demanded at a given price (horizontal summa1on) Q 0 1 2 3 4 5 MB1 10 8 4 2 0 0 MB2 12 11 10 8 4 0 MBS 22 19 14 10 4 0 Demand Curve for a Public Good Graph of the marginal private and social benefit schedules: MB 25 20 15 10 5 MB1 Q 1 2 3 4 5 MB2 MSB = MBi Demand curve for public good is "ver1cal summa1on" of individual demand curves 4 Socially op1mal quan1ty of a public good The op1mal quan1ty of a public good is where the marginal social cost curve intersects the marginal social benefit curve: MB, MC MSB MB2 MB1 MSC Q Q0 Private equilibrium quan1ty of a public good If we rely on private provision, the equilibrium quan1ty of a public good is where the highest individual MB curve intersects the MC curve: MSB MB2 MB1 DWL Once Q* has been provided by person 2, person 1 gets to enjoy it without paying Person 1 is a free-rider MSC End up with an inefficiently low quan1ty (Q* < Q0) and a DWL Q*...
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This note was uploaded on 01/18/2012 for the course PADP 6950 taught by Professor Fergi during the Spring '11 term at UGA.

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