Question

True or False: There is a public good which can be provided for citizens of country A and citizens of country B. This particular public good can either be produced (one unit) or not (zero units). Country A has 10 citizens who all have a marginal private benefit of the public good valued at 8 and Country B has 2 citizens who all have a marginal private benefit of the public good at 40. Country B is more likely to have the public good provided from the market without government intervention. Explain. Credit is given for the thoroughness of the explanation.

Answer 1

False, The given statement is incorrect.

Marginal private benefit is the benefit obtained from the consumption of one additional unit of the product. Now it is clear that when the marginal private benefit of a public good of country B is more than the country A, it doesn’t affect the distribution of public good into a country. It depends on the population. When the quantity of a good is limited, it is provided to the country where number of citizens is more than the other country. It then does not matter with the marginal private benefit. Here in this case, the number of citizens in country A is 10 and in country B is 2. Here, the good is required greatly in country A.

So without government intervention, the good will be provided to the country A but when government intervention happens, it will majorly depend on the policies of the government. The good may then be offered to the country B because they have the more marginal private benefit.