Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

Under Consumption: 
The property of non-excludability makes the rationing by the 
price system unfeasible which implies that the competitive market 
will not generate a Pareto efficient amount of the public good. In 
this case exclusion is undesirable because it results in under 
consumption. For instance, imposition of user fees will lead to 
under consumption. 
 
 
 
 
Figure 14.1 
 
The above figure explained the case of a bridge. The 
downward sloping demand curve explain the number of trips taken 
0
P
0
Q
c
Q
1
Q
Pr ice(toll)
DemandCurve
0
Number of trips taken

---

as a function of the toll charged. Lowering the toll increases the 
demand for the bridge. Q
c
is the capacity of the bridge. Thus, for 
any demand below Q
c
there is no congestion and no marginal cost 
associated with the use of the bridge when the bridge is operated 
below capacity, consumption is non-rival. Q
1
is the non-toll level of 
consumption. It is possible to exclude people from using the bridge 
by charging a toll. But, this will result in under consumption of the 
good. At P
0
, the number of trips taken on the bridge will be only Q
0
which is much below Q
1
, the number of trips without the toll. This 
results in under consumption of the good. 
 
Under Supply: 
In few cases provision of non excludable public goods are 
provided privately. This may be possible when there is a single 
large consume whose direct benefits are so large that is beneficial 
to provide it for himself. He knows that there are free riders 
benefiting from his actions, but in deciding how much to supply, he 
looks at his own direct benefits and not the benefits that add to 
others. For instance, there is a large shipowner and a few small 
shipowners. This large shipowner may find it beneficial to install a 
light house and light buoys, even though others cannot exclude 
from enjoying the benefits. But in deciding how many light houses 
and buoys to construct, he looks only at the benefits which accrue 
to his own ships. He will not take into consideration total benefits of 
constructing an additional buoy. Thus, even there is some provision 
of public goods privately, there will be an undersupply.
The free rider problem that accompanies public goods can be 
overcome by the government provision of public gods. The 
government has the power to compel people to contribute through 
taxes.