Public goods

Private provision of a public good

Below is shown the individual and combined demand for a non-rival good in a 2-person economy.

The red dashed line represents person B's residual demand curve, which depends on how much of the good person A chooses to buy. You can try dragging the blue dot on the horizontal axis to see how B's residual demand changes.

At initial parameters, if A was alone, he would purchase 15 units (that is where MB_A=P). But if he purchases 15 units, person B's best response is 2.5 units. If B purcases 2.5 units, A's best response is 13.75 and so on. The Cournot Nash Equilibrium is where A purchases 13.3 units, B purchases 3.3, for a total that is significantly below the social optimum (16.67 vs 25).


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