Which of the following best describes how the demand curve for a public good is derived?

• A. By vertically summing the individual demand curves of all consumers
• B. By averaging the individual demand curves of all consumers
• C. By horizontally summing the individual demand curves of all consumers
• D. By selecting the highest individual demand curve among all consumers

Answer: (A)

Verified step by step guidance

1. Understand that a public good is non-rivalrous and non-excludable, meaning one person's consumption does not reduce availability for others, and people cannot be excluded from using it.
2. Recall that for private goods, the market demand curve is derived by horizontally summing individual demand curves because consumers buy different quantities at each price.
3. Recognize that for public goods, the quantity consumed is the same for all consumers, so the total willingness to pay at each quantity is found by adding up the prices (valuations) each consumer is willing to pay.
4. This addition of willingness to pay at each quantity corresponds to vertically summing the individual demand curves, because at each quantity level, you sum the prices from all consumers.
5. Therefore, the demand curve for a public good is derived by vertically summing the individual demand curves of all consumers.