what is a public good
it is a good that, once produced, are availbe for all to consume, regardless of who pays and who doesn't pay. public goods are both non rival in consumption and non exclusive in the market so that paying consumers cannot be distinguished from non paying free rider consumers. public goods have two characteristics 1 non rival many people can be simultaneously consume the same good. this implies that for any given level of production the marginal cost of providing it to an additional consumer is zero. 2 non exlcusive people cannot be excluded from consuming the good examples of public goods include street lighting and national defence.
b why is it difficult or impossible for markets to provide public goods efficiently?
public goods allow for the free rider problem to occur making it diffcult or impossible for markets to provide public goods efficiently. this is because people may enjoy the benefits of consuming a public good wihtout contributing to the cost. the essential features of a market is that is able to identify the market price paying buyers and then able to exclude from the market any non paying potential buyers. so when sellers cannot distinguish paying buyers from non paying buyers, market cannot efficiently supply as no market price can be established and no transactions can occur. as mentioned, the primary features of a public good is that its non rival and non exclusive where the goods or service can be consumed simultaneoudly by many and non can be excluded. hence, it is impossible for markets to provide public goods efficiently as its features are violated by the characteristics of a public good.
c how can one determine the optimal level of provision of a public good?
to determine the optimal level of provision of a public good we need examien the cost as wel as the benfit. the government determines the most optimal number of units of a public good to produce by maximizing the net benefit, the point where the marginal benefit curve intersects the marginal cost curve. the marginal benefit curve for a public good canbe derived from summing vertically each individual consumer marginal benefit curves for that public good. so the governement will efficiently allocate resources to the supply of a public good where the marginal benefit of consumption to consumers equals the marginal costs in production to the government. this can be illustrated in the example of the government installing two streetlights. the net benefiti can be seen where the marginal benefit curve intersects the marginal cost curve.