The Efficient Provision of Public Goods

This video shows how to determine the socially efficient quantity of a public good. The efficient level is the quantity where the marginal social benefit equals the marginal social cost. Individuals do not purchase public goods, however, so the marginal benefit must be determined by: (1) asking how much each individual would hypothetically pay for an additional unit of the good, (2) using this informaiton to plot a demand curve for each individual, and (3) summing the individual demand curves to create the collective demand curve (marginal social benefit). The intersection of the collective demand curve and the marginal cost curve yields the socially optimal quantity of the public good that should be provided. The video uses an example to illustrate how this can be done to determine the optimal number of street lights for a neighborhood.

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This video was funded by a Civic Engagement Fund grant from the Gephardt Institute for Civic and Community Engagement at Washington University in St. Louis.—
Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world.
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