National defense is a pure public good. Yet members of the public disagree about the appropriate size of the Defense Department. Use a diagram similar to Figure 4.6 to find the appropriate amount of total spending for national defense. (For this example, assume that there only are three members of the public.) Peter the Peacenik thinks that all national defense is unimportant. Add Peter’s demand curve (MBp) to Figure 4.6. Has the optimal amount of national defense changed? Explain.

Figure 4.6

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Marginal Benefit and Marginal Cost (Dollars) 800 700 600 500 400 300 200 100 0 Efficient Output of a Pure Public Good 1 MC = AC MSC 2 3 4 Security Guards per Week D = EMB, MSB MBA MB MBC B 5