Question

Instructions: Enter your answers as whole numbers. | Individual #1 Price Qd $16 Individual #2 Price $16 Demand Public Good Price Qd Individual #3 Price Qd $16 14 Qd 14 2 b. Use the public demand schedule above and the following supply schedule to ascertain the optimal quantity of this public good. Price Quantity Supplied $20 Optimal quantity =

Answer 1

It shall be noted that in order to derive the demand schedule for the public good, take the sum total of the Price that all the individual is willing to pay for the purchase of a given unit of public good.

For example - for 1 unit of public good demand, the price is sum of $14 willing to be paid by individual 1 + $16 willing to be paid by individual 2 + $16 willing to be paid by individual 3 = $46

Thus., $46 for 1 unit of public good.

Hence, the Public good demand schedule is:

Individual 1	Individual 2	Individual 3		Public Demand
Price	Qd	Price	Qd	Price	Qd		Price	Qd
16	0	16	1	16	1		46	1
14	1	14	2	14	2		40	2
12	2	12	3	12	3		34	3
10	3	10	4	10	4		28	4
8	4	8	5	8	5		22	5
6	5	6	6	6	6		16	6
4	6	4	7	4	7		10	7
2	7	2	8	2	8		4	8

The Public good supply schedule is:

Public Supply
Price	Qs
20	10
18	8
16	6
14	4
12	2
10	0

On plotting the public good demand & supply schedule, the result is:

Public good : Demand & Supply - Equilibrium Price 2 4 8 10 12 6 Quantity

Thus, the optimal quantity of public good is 6