Question

Price 2

Answer 1

In the above diagram, the X axis represents the Collective quantity demanded and supplied of the public good, and the Y axis represents the price which is required to be paid by the consumers for getting that quantity of public good. If we see that segments pointed out in the graph, we can see that EQ3 represents the total quantity of the public good which the consumer is getting to consumer, for which ideally, he should have been required to pay EP4 amount of price, however, the consumer is only paying the price of FP2. Therefore, the segment EF represents the price variation as to how much the consumer was required to pay for the amount of good consumed by the consumer and how much he is really paying for that amount of public good. Hence, this segment EF represents the amount by which the marginal benefit of the public good exceeds the marginal cost of the quantity of consumption. Therefore ef is the correct answer.