Multiple Choice
An American who agreed with the cartoon illustrating the free-rider problem in public goods would most disagree with which of the following statements?
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8. The Types of Goods
Public Goods: Demand Curve and Optimal Quantity
Multiple Choice
The market demand for a public good can be determined by:
A
vertically summing the individual demand curves of all consumers
B
horizontally summing the individual demand curves of all consumers
C
adding the quantities demanded by each consumer at each price
D
multiplying the individual demand curves of all consumers
Verified step by step guidance1
Understand the nature of a public good: it is non-rivalrous and non-excludable, meaning one person's consumption does not reduce availability to others.
Recall that for private goods, market demand is found by horizontally summing individual demand curves, i.e., adding quantities demanded at each price.
For public goods, the market demand is found by vertically summing individual demand curves, which means adding the willingness to pay (prices) of all consumers at each quantity level.
This vertical summation reflects the total value society places on each quantity of the public good, since everyone consumes the same quantity but values it differently.
Therefore, the correct method to find the market demand for a public good is to vertically sum the individual demand curves, adding prices at each quantity.
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