Multiple Choice
Which of the following is an economic benefit of building large dams, considering the characteristics of public goods?
68
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 derived?
A
By horizontally summing the individual demand curves of all consumers
B
By taking the average of all individual demand curves
C
By using only the demand curve of the consumer with the highest willingness to pay
D
By vertically summing the individual demand curves of all consumers
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 everyone can consume it simultaneously.
Recall that for private goods, the market demand curve is found by horizontally summing individual demand curves because consumers choose quantities independently.
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 willingness to pay values.
Therefore, to derive 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.
This vertical summation reflects the total value society places on each quantity of the public good, which is why the demand curve for a public good is obtained by vertically summing individual demand curves.
Related Videos
Related Practice
