DEFINITION of 'Lindahl Equilibrium'

A concept that proposes that individuals pay for the provision of a public good according to their marginal benefits in order to determine the efficient level of provision for public goods. In the equilibrium state, all individuals consume the same quantity of public goods but may face different prices because some people may value a particular good more than others. The Lindahl equilibrium price is the resulting amount paid by an individual for his or her share of the public goods.

BREAKING DOWN 'Lindahl Equilibrium'

The Lindahl equilibrium concept was proposed by Swedish economist Erik Lindahl. Lindahl prices can be viewed as individual shares of the collective tax burden of an economy, and the sum of Lindahl prices equals the cost of supplying public goods such as national defense. One key limitation of the Lindahl equilibrium is that we do not know how much each person values a certain good, which limits its application in the real world.

RELATED TERMS
  1. Competitive Equilibriums

    An equilibrium condition where the interaction of profit-maximizing ...
  2. General Equilibrium Theory

    General equilibrium theory studies supply and demand fundamentals ...
  3. Economic Equilibrium

    A condition or state in which economic forces are balanced. These ...
  4. Equilibrium

    The state in which market supply and demand balance each other ...
  5. Equilibrium Quantity

    The quantity of an item that will be demanded at the point of ...
  6. Public Good

    A product that one individual can consume without reducing its ...
Related Articles
  1. Insights

    What Is Equilibrium?

    Equilibrium is a state of balanced supply and demand.
  2. Investing

    What Is Economic Equilibrium?

    Economic equilibrium occurs when market supply is equal to market demand.
  3. Investing

    What is Deadweight Loss?

    Deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  4. Trading

    The Nash Equilibrium

    Nash Equilibrium is a key concept of game theory, which helps explain how people and groups approach complex decisions. Named after renowned mathematician John Nash, the idea of Nash Equilibrium ...
  5. Investing

    Why You Can't Influence Gas Prices

    Don't believe the water-cooler talk. Big oil companies aren't to blame for high prices.
  6. Insights

    What is Market Failure?

    Market failure happens when economic conditions cause a market to be unable to reach supply/demand market equilibrium.
  7. Insights

    What's a Price Ceiling?

    A price ceiling is the maximum amount a seller can charge for a product or service.
  8. Investing

    What is a Public Company?

    A public company has sold stock to the public through an initial public offering (IPO) and that stock is currently traded on a public stock exchange.
  9. Investing

    Public Goods & Free Riders

    A public good is an item whose consumption is determined by society, not individual consumers.
RELATED FAQS
  1. What is general equilibrium theory in macroeconomics?

    Achieving equilibrium of prices in a single or multi-market setting involves a bidding process that is informed precisely ... Read Answer >>
  2. How is a market failure prevented with regard to public goods?

    Read about the development of public goods theory in economics, how it conceptualized market failure and later critiques ... Read Answer >>
  3. How does the law of supply and demand affect prices?

    Learn what the law of supply and demand is, what relationship it has with prices, and how the law of supply and demand affects ... Read Answer >>
  4. What does the Nash equilibrium predict?

    Learn more about the famous Nash equilibrium, which is the revolutionary concept in game theory about the economics of human ... Read Answer >>
  5. Why is PPP (purchasing power parity) controversial?

    Find out why economists disagree about the conceptual validity of the theory of purchasing power parity (PPP) to describe ... Read Answer >>
  6. How do I decide whether a credit card offer is a good deal or not?

    Discover the ways that externalities lead to market failure. Externalities are costs or benefits that go to a third party, ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center