A The individual optimum for individual goods

From an economic point of view the individual optimum for individual goods is relatively simple (Fig. B.1): it is a situation where the consumer surplus (ACaP) is at a maximum. An individual's consumer surplus is the maximum price the individual would be prepared to pay for a certain quantity of a good (= marginal benefits, ACaQaO) less the amount that he actually pays (= marginal costs, PCaQaO). The marginal benefits are the sum of the price (A) that an individual is prepared to pay per unit. It is assumed here that, after the first item of a certain good has been purchased, each subsequent item will be less satisfying, i.e. will produce fewer benefits than the previous one. Take, for example, rooms in a home: the individual is prepared to pay A1 for the first room, A2 for the second, etc. Figure B.1 shows that the optimum will have

Table B.1 Four different situations for the optimum (after: Van den Doel (1993))

Individual Goods

Collective Goods

Individual optimum

individual optimum for individual goods

individual optimum for collective goods

Collective optimum

collective optimum for individual goods

collective optimum for collective goods

Ai

the price A is prepared to pay per item

P

the actual price per item

Ca

costs A has to pay

ADa

A's demand curve

ACaQaO

A's marginal benefits

PCaQaO

A's marginal costs

ACaP

A's consumer surplus

O 123456789

Qa Da

Quantity

Figure B.1 A's individual optimum for individual goods been achieved if an individual buys five rooms (Qa = 5), each for the same price P. The sixth room costs more than the buyer is prepared to pay for it. ADa is the demand curve for rooms.

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