public good(2)

Question 1

MRS(x1,G)

Answer 1

Marginal utility g / marginal utility x1

Question 2

how to draw graphs (Sum of MRS>MC)

Answer 2

MRS1 > change in wealth/change in public good
MRS2 > change in wealth/change in public good
change in wealth/change in public good > marginal cost
Increase G, reduce wealth’s.
Results in infeasible allocation since not all the change in wealth is expended on the public good

Question 3

Individual’s MRS

Answer 3

their marginal willingness to pay for the public good

Question 4

Combined MRS

Answer 4

Social marginal willingness to pay for public good

Question 5

Efficiency condition

Answer 5

social marginal willingness to pay for an extra unit of the public good must equal the social marginal cost of providing said unit.

Question 6

Public v private good

Answer 6

Everyone values private good the same at the margin: MRS’ are equal. However, they consume different amounts.
Public goods valued differently at the margin, but everyone consumers the same. Sum of values must equal mc at the margin.

Question 7

private provision of public good

Answer 7

Everyone incentivised to contribute as little as possible. Results in public good being under provisioned than is socially optimal. People incentivised to free ride

Question 8

What happens when neither individual has control over the others contribution

Answer 8

they form a conjecture. Leads to MRS1 = 1
MRS2 > 0. MC = 1 therefore inefficient outcome.