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 horizontally summing the individual demand curves of all consumers
• C. By averaging 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.
2. Recall that for private goods, the market demand curve is derived by horizontally summing individual demand curves because consumers buy separate quantities.
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 individual valuations vertically.
4. Therefore, to derive the demand curve for a public good, sum the prices (willingness to pay) of all consumers at each quantity level, which is vertical summation.
5. Conclude that the demand curve for a public good is obtained by vertically summing the individual demand curves of all consumers.