In the context of public goods, what is the correct method for determining the market demand curve?

• A. By taking the average of all individual demand curves
• B. By vertically summing the individual demand curves of all consumers
• C. By using only the demand curve of the consumer with the highest willingness to pay
• D. By horizontally summing the individual demand curves of all consumers

Answer: (B)

Verified step by step guidance

1. Understand that public goods are non-rivalrous and non-excludable, meaning one person's consumption does not reduce availability for others.
2. Recall that for private goods, market demand is found by horizontally summing individual demand curves because consumers buy different quantities at each price.
3. Recognize that for public goods, since everyone consumes the same quantity, the market demand curve is found by vertically summing individual willingness to pay at each quantity level.
4. To vertically sum, add the individual prices (willingness to pay) of all consumers for each quantity to get the total willingness to pay at that quantity.
5. Plotting these summed prices against quantities gives the market demand curve for the public good.