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Marginal benefit equals its marginal cost
- The government is providing an efficient quantity of a public good when its marginal benefit equals its marginal cost.
While some public goods, like roommates buying a washer/dryer, present an “either/or” question, other public goods present a “how much” question: for example, how many teachers should a public school hire, or how much should a country spend on its military?
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What is the efficient quantity of a public good?
What is a public good?
What is socially optimal provision of a public good?
Should the government provide a public good?
Let’s begin by defining the characteristics of a public good and discussing why these characteristics make it difficult for private firms to supply public goods. Then we will see how government may step in to address the issue.
Jul 17, 2023 · The efficient quantity of a public good is the quantity that maximizes net benefit (total benefit minus total cost), which is the same as the quantity at which marginal benefit equals marginal cost. Cost-Benefit Analysis
public good, in economics, a product or service that is non-excludable and nondepletable (or “non-rivalrous”). A good is non-excludable if one cannot exclude individuals from enjoying its benefits when the good is provided.
Many mechanisms have been proposed to achieve efficient public goods provision in various settings and under various assumptions. Lindahl tax. A Lindahl tax is a type of taxation brought forward by Erik Lindahl, an economist from Sweden in 1919.
For an efficient mechanism the public good should be produced if and only of the sum of the values exceeds the cost. ( θ ) = Max { s ( θ , q )} = Max { q ( ∑. q ∈ [0,1] q ∈ [0,1] i ∈ \. θ − k )} i.
provision of public goods. Private provision works better when: 1) Some Individuals Care More than Others: Private provision is particularly likely to surmount the free rider problem when individuals are not identical, and when some individuals have an especially high demand for the public good. 2) Altruism:
