CA Foundation · Business Economics · Public Finance
For a public good, the individual marginal benefits of three residents at a given quantity are Rs 40, Rs 25 and Rs 15. What is the social marginal benefit at that quantity, and what is the reason?
The social marginal benefit is Rs 80. Because everyone consumes the same quantity of a public good, individual marginal benefits are added vertically: 40 plus 25 plus 15 equals Rs 80. Averages or the highest value understate the total benefit to society.
- ARs 25, the average of the three benefits
- BRs 15, the lowest benefit, since all consume the same unit
- CRs 40, the highest individual benefit
- DRs 80, because individual benefits are added verticallyCorrect
Explanation
Public goods are consumed in equal amounts by all, so the social demand curve is the vertical sum of individual demand curves: 40 + 25 + 15 = Rs 80. Option A takes the average (wrong aggregation), and option C takes only the maximum, ignoring other users' benefits. For private goods, by contrast, demand is summed horizontally.
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