Demand Curve for Public Goods:
Individual do not buy public goods. However, a demand
curve for the public goods can be derived by asking the people how
much they are willing to pay for public goods if they had to pay a
price for each an additional of the public good. The price for the
additional unit of the public good can be considered as the
individual‘s tax price. It is assumed that the government has the
power to charge different tax prices to different individuals.
The individual‘s budget constraint, i.e., the total amount he is
willing to spend on public and private goods is given by:
C + pG = Y
Where,
p = the individual‘s tax price he must pay for each unit of the public
good.
C = individual‘s consumption of private goods
G = the total amount of public goods provided
Y = individual‘s income
The budget constraint shows the combination of public and
private goods the individual can buy, given and his tax price.
E
E
B
Panel
1
p
2
p
Quantityof
Public Goods
Tax
Pr ice
Demand for
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