A Public Good

Defense: A Public Good

Suppose that you are the secretary of defense for a small country of 3000 citizens. You need to advise the president of the appropriate level of defense. Surveys indicate that the defense preferences of the people fall into three categories (A, B, and C), and there are 1000 people in each category. The amount of defense that each person would demand at various prices is as given below.

Price of a unit of Number of Units of Defense Demanded national defense (dollars) Type A Type B Type C

1101010.5

29810

386.58

4767

5656

Suppose also that you have determined that the marginal social costs of 6, 8, and 10 units of defense are as indicated below.

Units of Defense Marginal Social Cost

6$7,000

88,000

1012,000

What is the marginal social benefit of 6 units of defense to the people of your country?

What is the marginal social benefit of 8 units of defense to the people of your country?

What is the marginal social benefit of 10 units of defense to the people of your country?

What is the appropriate number of units of defense for the people of your country? Why?

[Note: For private goods, horizontally sum the individual demand curves to get the total market demand curve. For public goods, vertically sum the individual demand curves to get the total market demand curve.]