Question

consider the market for local police protection, illustrated in the figure to the right, where ( s_1 ) is marginal private cost and ( d_1 ) is marginal private benefit. police protection is an example of a public good. suppose that the consumption of local police protection generates a positive externality of $100 per unit. if so, then according to the figure, the optimal quantity of local police protection for society is ( square ) units. (enter your response as an integer.)

Explanation:

Step1: Understand the concept of positive externality

When there is a positive externality, the marginal social benefit (MSB) is greater than the marginal private benefit (MPB). The MSB curve is the MPB curve shifted upward by the amount of the externality (\( \$100\) per unit in this case).

Step2: Find the intersection point

The optimal quantity for society is where the marginal social benefit (after accounting for the positive externality) equals the marginal private cost (\(S_1\)). Looking at the graph, we need to find the quantity at this intersection.

Answer:

7