Multiple Choice
Which of the following best describes how collective (public) goods differ from private goods?
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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 vertically summing the individual demand curves of all consumers
B
By using only the demand curve of the consumer with the highest willingness to pay
C
By horizontally summing the individual demand curves of all consumers
D
By taking the average of all individual demand curves
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 derived by horizontally summing individual demand curves because consumers buy different quantities at each price.
Recognize that for public goods, the quantity consumed is the same for all consumers, so the total willingness to pay at each quantity is found by adding up the prices (valuations) each consumer is willing to pay.
Therefore, to derive the demand curve for a public good, you vertically sum the individual demand curves, which means 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, forming the social demand curve.
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