Efficient provision of a public good occurs when:
A)the marginal cost and the marginal social benefit curves intersect; the marginal social benefit curve is the sum of all the individual demand curves for the good.
B)the marginal cost and the marginal social benefit curves intersect; the marginal social benefit curve reflects the costs and benefits of producing the good.
C)each individual votes on the amount that is to be spent on public goods.
D)the free market is left to determine the social costs and benefits.

Question

Quizplus · Accepted Answer

Efficient provision of a public good occurs when the marginal cost and the marginal social benefit curves intersect. The marginal social benefit curve is the sum of all the individual demand curves for the good. This ensures that the optimal level of the public good is being produced and consumed, balancing the costs involved in producing the good with the benefits received by society. Option B is incorrect as marginal social benefit curve should not reflect the costs of producing the good, rather it should reflect the benefits accrued to society from the consumption of the good. Option C is incorrect as voting may not necessarily lead to efficient provision of public goods. Option D is incorrect as the free market may not take into account the benefits received by society which are non-excludable and non-rivalrous. Efficient provision of a public good occurs when the marginal cost and the marginal social benefit curves intersect, and the marginal social benefit curve is the sum of all the individual demand curves for the good. This means that the demand for the public good by all individuals in the society is taken into account when determining the optimal level of provision. When the marginal cost equals the marginal social benefit, society is getting the greatest benefit from the public good at the lowest possible cost.

Efficient Provision of a Public Good Occurs When