Which of the following statements about public goods is true?

• A. Public goods are efficiently provided by competitive markets without government intervention.
• B. Public goods are rival and excludable in consumption.
• C. The optimal quantity of a public good is where the sum of marginal private benefits equals marginal cost.
• D. The demand curve for a public good is found by vertically summing individual demand curves.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the definition of a public good. A public good is characterized by being non-rivalrous (one person's consumption does not reduce availability for others) and non-excludable (it is difficult or impossible to exclude anyone from using the good).
2. Step 2: Analyze the first statement: 'Public goods are efficiently provided by competitive markets without government intervention.' Since public goods are non-excludable and non-rivalrous, competitive markets often fail to provide them efficiently due to the free-rider problem.
3. Step 3: Examine the second statement: 'Public goods are rival and excludable in consumption.' This contradicts the definition of public goods, as they are specifically non-rival and non-excludable.
4. Step 4: Consider the third statement: 'The optimal quantity of a public good is where the sum of marginal private benefits equals marginal cost.' For public goods, the optimal provision is determined by summing the marginal benefits across all individuals (not just private benefits) and equating this to marginal cost.
5. Step 5: Understand why the correct statement is: 'The demand curve for a public good is found by vertically summing individual demand curves.' This is because the total willingness to pay for each quantity of a public good is the sum of all individuals' willingness to pay at that quantity, reflecting the non-rival nature of the good.