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

OF SOCIAL
GOODS
QUANTITY
100
75
50
25
0
100
75
50
25
0
a
b
L
M
N
K
O
F
T
P
D
S
R
a
b
PERCENTAGE
OF
As
CONTRIBUTION
Bs
DEMAND
PERCENTAGE
OF
CONTRIBUTION
Bs
DEMAND
As

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when voting is taken for their contribution, A is willing to bear LT 
percentage (nearly 75%) and B is willing to share KS percentage 
(nearly 75%). In this case, the total tax collection exceeds the cost. 
If now the tax is to be lessened just to cover up the actual cost of 
supplying OL amount of social goods both A and B would vote for a 
larger quantity of social goods. In the process eventually, the 
equilibrium cost is attained when the state provides OM amount of 
social goods for which A is asked to contribute PM percentage 
share of cost, which he is also willing to bear and B is asked to 
contribute PQ percentage share of cost, which he is willing to bear, 
PM + PQ = 100% of the cost. 
Thus, only at OM level of output the total cost of provision of 
the social goods would be just covered by the contribution through 
tax payments willingly made by both individuals A and B who 
enjoyed the benefits accordingly. The equilibrium or optimum 
amount of social goods (OM) is, thus, obtained by intersection of aa 
and bb curves. PM and PQ percentage shares of the cost are the 
optimum tax liability of A and B exactly equal to the benefits 
enjoyed by them. It is easy to see that for any amount in excess of 
OM, the combined cost shares that A and B are willing to bear fall 
short of 100 %. Say, if ON amount of social goods is provided, 
then, A is willing to contribute only NR percentage share of cost 
and B is willing to contribute only FD. NR + FD is obviously less 
than 100% of the total cost by DR. Hence, the amount cannot be 
supplied by the government. Thus, by a process of trial and error, 
the equilibrium amount OM may be reached.