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Helen Kebede Helen Kebede
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3 months ago

The diagram below shows the marginal benefit of consuming, and marginal cost of providing, a public good. This economy has 3 individuals, A, B and C. The diagram shows the MB for each individual and a summation of their marginal benefits.

Short description: A graph plots quantity against marginal benefit, marginal cost. Long description: The horizontal axis representing quantity ranges from Q subscript 1 to Q subscript 4. The vertical axis represents a marginal benefit, marginal cost ranges from P subscript 1 to P subscript 4. The graph plots four lines. A line representing MC passes through the following points: (Q subscript 1, P subscript 1), (Q subscript 2, P subscript 2), (Q subscript 3, P subscript 3), and (Q subscript 4, P subscript 4). Three parallel lines, MB subscript A, MB subscript B, and MB subscript C intersect the line, MC at points, (Q subscript 1, P subscript 1), (Q subscript 2, P subscript 2), and (Q subscript 3, P subscript 3). The line representing M B subscript A B C intersects the line, MC at point (Q subscript 4, P subscript 4).

FIGURE 16-4

Refer to Figure 16-4. Suppose the government provides Q4 units of the public good. If consumers were then required to pay a price of zero for the good,



▸ the market would clear, although not enough would be produced.

▸ the inefficient quantity would be being produced.

▸ the appropriate price would be achieved, although not enough would be consumed.

▸ consumers would use too little of the public good, and the outcome would be inefficient for society.

▸ consumers would use the public good until their marginal benefit was zero, and this would be socially optimal.
Textbook 

Microeconomics


Edition: 17th
Author:
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kimtrankimtran
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consumers would use the public good until their marginal benefit was zero, and this would be socially optimal.

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Helen Kebede Author
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this is exactly what I needed
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This site is awesome
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