Page 355 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes When the public goods should be available and who and what should be paid? Following observations
are to be noted—
(i) The public goods should available when the addition of reservation price is equal to more than
public goods. Reserved price is the maximum price which a person is ready to pay for public goods
for getting maximum or equal satisfaction.
Example—The affordability of a television set in a government region of 10 families is public goods. It
is non –rivalry and non-excludable. When it should be available or connected? It clarifies that the price
which is ready to pay by the residents of that region is equal to or more than the total cost of television.

(ii) How much quantity should public goods be available? In normal goods situation, if a person is
using goods, then others cannot use that particular goods. So in a given price, only a fixed production
occurs. In other words, in the condition of general goods, horizontal summation of individual demand
curve to derive aggregate demand curve and in a particular price, fixed quantity is produced. But as
per the relation of public goods, some of the quantity is available for the entire person. So as the given
quantity of product, its price should equal to given by every penny of a person.

Fig. 23.3

Y
MC
E
Price (In `) P 2 1 D M
P
P
0
D D B
A
O X
Q
0
Quantity
As shown in Fig. 23.3, a vertical summation for individual demand curve is extracted.
In this diagram, the demand of public goods by two persons A and B has shown as D and D curve
B
A
respectively. By vertical summation, we get D curve which is the demand of both persons. This
M
demand curve (D ) describes that how many price is ready to give for a product.
M
MC curve is marginal cost of public goods and it is also a supply curve.
E is an equilibrium point on which the demand is equal to supply on OP price. The OQ quantity is
0
2
given for the public goods which is available for both A and B.
The cost of every unit OP is differentiating between both A and B. The person A pays OP and B pays
0
2
OP , so OP + OP OP .
1 0 1 2
Thus the optimum quantity is produced as OQ and the cost is equally distributed to its experimentalists.
0
But it always cannot possible that it happens by the theory of demand-supply equations. To understand
this condition that the average quantity of public goods is available for all (because public goods are
non-rivalry), but some experimentalists will hide the experiments of these products means they will
hide of using these products.
TV in one area. In the previous example with the availability of any user other than it can use its free. in
such a situation, object or substance is either not available karya TV. The cost of putting all users it has
definitely not been spent for it i.e. suffered did not pay.
The government generally took the cost to get rid of free riders. The government expends the tax
revenue rather than any sales revenue.

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