The diagram below shows the marginal benefit of consuming, and marginal cost of providing, a public good. This economy has 3 individuals, A, B and C. The diagram shows the MB for each individual and a summation of their marginal benefits.
FIGURE 16-4
Refer to Figure 16-4. Suppose the government provides Q4 units of the public good. If the government was able to require consumers to pay a price of P1, then
◦ the appropriate price would be achieved, although not enough would be consumed.
◦ consumers would not use the public good at all, and this would be socially optimal.
◦ the market would clear, although not enough would be produced.
◦ consumers would use too little of the public good, and the outcome would be inefficient for society.
◦ an inefficient quantity would be being produced.
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