AP_Krugman_Textbook

748 section 14 Market Failure and the Role of Government

17

MPBT

The marginal social

benefit curve of a public

good equals the vertical

sum of private marginal

benefit curves.

Efficient quantity

of the public good

(^0654321)
$25
18
12
7
3
1
Marginal
benefit
(a) Ted’s Marginal Private Benefit Curve
Quantity of street cleanings (per month)
25
46
35
25
16
8
12
7
3
1
18

MSB

MSC = $6

(^0654321)
25
35
$46
16
8
6
2
Marginal
benefit,
marginal
cost
(c) The Marginal Social Benefit Curve
Quantity
of street
cleanings
(per month)
25
21
12
13
7
9
3
5
1
2
18

MPBA

(^0654321)
$21
17
13
9
5
1
Marginal
benefit
(b) Alice’s Marginal Private Benefit Curve
Quantity of street cleanings (per month)
21
13
9
5
1
17
1
figure 76.2
Panel (a) shows Ted’s marginal private benefit curve, MPBT,
and panel (b) shows Alice’s marginal private benefit curve,
MPBA.Panel (c) shows the marginal social benefit of the public
good, equal to the sumof the marginal private benefits to all
consumers (in this case, Ted and Alice). The marginal social
benefit curve, MSB,is the vertical sum of the marginal private
benefit curves MPBTandMPBA.At a constant marginal social
cost of $6, there should be 5 street cleanings per month,
because the marginal social benefit of going from 4 to 5 clean-
ings is $8 ($3 for Ted plus $5 for Alice), but the marginal social
benefit of going from 5 to 6 cleanings is only $2.
A Public Good
Of course, if society really consisted of only two individuals, they would probably
manage to strike a deal to provide the good. But imagine a city with a million resi-
dents, each of whose marginal private benefit from a good is only a tiny fraction of
the marginal social benefit. It would be impossible for people to reach a voluntary
agreement to pay for the efficient level of a good like street cleaning—the potential
for free-riding would make it too difficult to make and enforce an agreement among
so many people. But they could and would vote to tax themselves to pay for a city-
wide sanitation department.