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    Drawing the society's demand curve for the public good

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    The table attached shows the willingness to pay for various units of a public good for the only two individuals in a society. The willingness to pay is the willingness to pay per unit of the public good. For example, person 1 is willing to pay $55 per unit of the public good for two units. To put it another way, if the price to person 1 of two units of the public good is $55, then person 1 would want to purchase 2 units of the public good. (I f you were to plot person 1's willingness to pay for the public good with quantity on the horizontal axis and willingness to pay on the vertical axis, it would look like a demand curve, and that is exactly what it is.) Fill in the column "Society's willingness to pay." Then draw a graph of Society's demand for the public good.

    Quantity of the public good Willingness to pay of person 1 Willingness to pay of person 2 Society's willingness to pay
    1 65 35
    2 55 25
    3 45 15
    4 35 5
    5 20 0

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    Solution Preview

    Please refer attached file for graph.

    Refer to given table, let us assume that one unit of public good is produced. Because of non-rivalry, Person 1's consumption of the good does not preclude Person 2 from also consuming it, and vice-versa. So, both consume the good, and neither volunteers to pay for it. But from the above table, we find that these two persons would be ...

    Solution Summary

    Solution determines the society's demand curve for the public good in the given case.