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

14.3.8 Collective Demand Curve 
One can use this approach to trace out the demand for 
public goods of Ramesh and Suresh by adding vertically to derive 
the collective demand curve. Vertical summation is suitable as it is 
provided in the same amount to all individuals and the usage of 
public good by one individual does not detract form any other 
individual‘s enjoyment of it.

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Figure 14.6: Collective Demand for Public Goods 
The market or collective demand curve show the sum of the 
Ramesh and Suresh willingness to pay, i.e., the total amount 
together by them are willing to pay for an additional unit of public 
goods. 
At point of the demand curve the price is equal to marginal 
rate of substitution. Thus by adding vertically demand curves we 
obtain the sum of the marginal rates of substitution, i.e., the total 
amount of private goods that Ramesh and Suresh are willing to 
give up for an additional unit of public good. 
14.3.9 Determination of Efficient Production of Public Goods 
The efficient supply of public goods is determined at the 
point where the collective demand curve and the supply of public 
goods intersect. This is shown in Figure 14.8. The supply curve 
represents the quantity of other goods that have to be given up to 
obtain one more unit of the public good. In other words, the supply 
curve shows the marginal cost or the marginal rate of 
transformation. The collective demand curve shows the sum of the 
marginal willingness to pay of the sum of the marginal rates of 
substitution. Thus at point E, collective demand is equal to the 
supply, the sum of the marginal rates of substitution equals the 
marginal rate of transformation. The OM quantity of public goods 
determined by the intersection of the collective demand curve and 
the supply curve for public goods is Pareto efficient.