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The Optimal Provision of a Public Good Occurs When the Sum

question 41

Essay

The optimal provision of a public good occurs when the sum of the marginal rate of substitution for all members of society equals 1,the marginal rate of transformation.What is the relationship between the marginal rates of substitution in the competitive market? Use this relationship to explain why too few public goods are provided in the competitive market.


Definitions:

Input Market

The market in which firms purchase raw materials, labor, services, and other inputs necessary for the production of goods or services.

Salvage Value

The estimated resale value of an asset at the end of its useful life.

Expected Benefit Approach

A method used in actuarial science and finance to calculate the anticipated benefits and corresponding costs or contributions to a pension plan over time.

Output Market

The marketplace in which goods and services produced by businesses are sold or offered to end users or consumers.

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