Suppose there are two individuals, Bob and Linda, who have demand curves for good X characterized by the equation P= 6-2QandP= 6-Q. Assume that the good is produced competitively, and that the marginal cost of production (Supply) is given by P= 2Q.

a) Assume that good X is a private good. What is the market demand (i.e. marginal social benefit) for good X? Solve for the market equilibrium price and quantity. Depict graphically.

b) If good X is a public good, what is the market demand (i.e. marginal social benefit) for good X? Solve for the efficient price and quantity. Depict graphically.

c) Comment on why your answers in parts a and b are different.

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Private goods are the goods which are rival and excludable in nature Rival goods are the goods to wh... View the full answer