ABSTRACT
The analysis of policy-induced change in a closed economy raised the question of the nature of government that should be postulated in developing an economic theory relevant to the analysis of economic policy. This chapter aims to extend the analysis of the two-sector model to the case where one of the commodities in the model is a public good and the other a private one. The essential characteristic that distinguishes public from private goods concerns the technical nature of the benefits conferred by the production and consumption of each. In partial equilibrium analysis, the aggregate demand curve for private goods is derived by lateral summation of the individual demand curves. In order to concentrate on the analytical essence of the public goods problem, it is convenient to abstract from shifts in the personal or functional distribution of income induced by shifts in the allocation of production between the public and the private good.
