Which of the following statements is true regarding the demand curve for a public good?

• A. The market demand curve for a public good is obtained by horizontally summing individual demand curves.
• B. The demand curve for a public good is always downward sloping for each individual.
• C. The market demand curve for a public good is obtained by vertically summing individual demand curves.
• D. The optimal quantity of a public good is where marginal cost equals the sum of average willingness to pay.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the nature of a public good. Public goods are characterized by being non-excludable and non-rivalrous, meaning one person's consumption does not reduce availability to others, and people cannot be easily excluded from using the good.
2. Step 2: Recall how individual demand curves for public goods differ from private goods. For private goods, market demand is found by horizontally summing individual demand curves (adding quantities demanded at each price). For public goods, the key difference is that the good is consumed jointly by all individuals.
3. Step 3: Recognize that for public goods, the market demand curve is derived by vertically summing individual willingness to pay (WTP) at each quantity. This means adding the prices (WTP) that each individual is willing to pay for a given quantity, rather than adding quantities demanded at a given price.
4. Step 4: Understand the shape of individual demand curves for public goods. While individual demand curves can be downward sloping, the market demand curve is constructed by summing vertically, reflecting total willingness to pay for each quantity level.
5. Step 5: Know the condition for the optimal provision of a public good. The efficient quantity is where the marginal cost (MC) of providing the good equals the sum of the marginal willingness to pay (or marginal benefits) of all individuals, not the sum of average willingness to pay.