The following information is for a public good.P_a and P_b are the prices that individuals A and B are willing to pay for the last unit of a public good,rather than do without it.These people are the only two members of society.If this good were a private good instead of a public one,the total quantity demanded at a $3 market price would be:

Question

Quizplus · Accepted Answer

Since P_a and P_b are the prices that individuals A and B are willing to pay for the last unit of the public good, we can assume that their willingness to pay for the first unit is higher than their willingness to pay for the last unit. Therefore, we can assume that the total quantity demanded at a $3 market price for a private good would be equal to the sum of the quantities that individuals A and B are willing to pay $3 or more for. Since we do not know the actual values of P_a and P_b, we cannot calculate the exact answer. However, we do know that the total quantity demanded for a public good is higher than the total quantity demanded for a private good, so the actual answer must be equal to or greater than the private good quantity demanded at a $3 market price. The only choice that satisfies this condition is D) 4 units.

The Following Information Is for a Public Good