Answer to Question #213646 in Microeconomics for Nethonzhe

Question

Differentiate between private goods and public goods and then illustrate and discuss why in the 

provision of private good the summation is horizontal while it is vertical in the case of the provision 

of public good.

Answer 1

Public goods are the ones which are provided by the nature for free to be used by the people while private goods are ones which are manufactured and then sold by companies inorder to satisfy the wants and needs of consumers.

The summation of private goods is horizontal because consumers cannot consume the same unit of goods. Competition in consumption makes the market price system extremely effective hence the invisible hand hypothesis can work well.

The marginal benefit of public goods reduces as the level of goods provided increases. Public goods are not competitive which means everyone can consume each unit of a public good. This makes the summation of public goods to be vertical.