The Reason Why We Sum the Demand Curves of Individual

question 42

Multiple Choice

The reason why we sum the demand curves of individual consumers vertically rather than horizontally in a public goods market is that:

• A)the willingness to pay in a public good market is smaller than that in a standard market.
• B)individual consumers are unlikely to be willing to pay enough to cover the marginal cost of production of a public good.
• C)the marginal social benefit of the Xth unit includes all consumers' marginal social benefits because the public good is non-exclusive and non-rival.
• D)the concept of quantities is meaningless in the case of public goods.

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Definitions:

Interest Rate

The cost of borrowing money or the return on savings, typically expressed as a percentage of the principal amount per year.

Discounting

The process of determining the present value of future cash flows by applying a discount rate to reflect time value of money and risk.

Equilibrium Interest Rate

The interest rate at which the quantity of loanable funds demanded equals the quantity of loanable funds supplied.

Domestic Output

The total value of all goods and services produced within a country's boundaries over a specific time period.