To understand the demand curve for public goods, it's essential to first grasp how we derive the demand curve for private goods. The demand curve for a private good is created by aggregating the individual quantities demanded at each price point. For instance, consider cheeseburgers as a private good, which is both rival and excludable. If we have two individuals in a society, we can illustrate their demand at different prices. At a price of $5, both individuals may be willing to purchase one cheeseburger each, resulting in a total market demand of two cheeseburgers. If the price drops to $3, the first individual might demand five cheeseburgers while the second demands three, leading to a total market demand of eight cheeseburgers at that price.
This process of determining market demand involves adding the quantities demanded by each individual at each price, which is referred to as horizontal summation. This means that for each price level, we sum the individual demands to find the total market demand.
When transitioning to public goods, the approach to determining demand changes significantly. Public goods are characterized by being non-rival and non-excludable, meaning that one person's consumption does not diminish another's ability to consume the good, and individuals cannot be effectively excluded from using it. This fundamental difference necessitates a different method for calculating the demand curve for public goods, which will be explored further in subsequent discussions.