IGNOU EEC 11 2015 2016 - What is Lindahl equilibrium? Explain with the help of diagram.

Question

What is Lindahl equilibrium? Explain with the help of diagram.

30 Apr 2017

Answer :

Word Count : 328

The Lindahl equilibrium occurs when the per unit price paid by each agent sums to the total per unit cost of the public good.

The Graph

We start with a good ol’ fashioned demand curve for a public good. The lower the price of the good, the more Person 1 wants to consume. Now imagine that the dashed horizontal line is the full price of the good. At this point, the demand curve makes it look like Person 1 will demand very little. But what if rather than the price dropping, the

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