Multiple Choice
Which of the following best explains why a religious organization not paying tax on religious items does not make those items a public good?
79
views
8. The Types of Goods
Public Goods: Demand Curve and Optimal Quantity
Multiple Choice
Which of the following best describes how the demand curve for a public good is determined?
A
By vertically summing the individual demand curves of all consumers
B
By averaging the individual demand curves of all consumers
C
By horizontally summing the individual demand curves of all consumers
D
By using only the demand curve of the consumer with the highest willingness to pay
Verified step by step guidance1
Understand that a public good is non-rivalrous and non-excludable, meaning one person's consumption does not reduce availability for others, and people cannot be easily excluded from using it.
Recall that for private goods, the market demand curve is found by horizontally summing individual demand curves because consumers consume separate quantities.
Recognize that for public goods, the quantity consumed is the same for all consumers, so the total willingness to pay at each quantity is the sum of individual valuations.
Therefore, to find the demand curve for a public good, you vertically sum the individual demand curves, adding the prices (willingness to pay) of all consumers at each quantity level.
Conclude that vertical summation reflects the total value society places on each quantity of the public good, which determines the market demand curve for that good.
Related Videos
Related Practice
