What is the 'Lindahl Equilibrium'

The Lindahl equilibrium 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. To find the Lindahl equilibrium, the supply of public goods is adjusted until the supply and demand factors cause the price of the public good to be equal to the amount it costs to produce the public good.

RELATED TERMS
  1. Economic Equilibrium

    Economic equilibrium is a condition or state in which economic ...
  2. Equilibrium

    Equilibrium state in which market supply and demand balance each ...
  3. Scarcity Principle

    The scarcity principle is an economic theory in which a limited ...
  4. Quantity Supplied

    The quantity supplied is a term used in economics to describe ...
  5. Demand

    Demand is an economic principle that describes consumer willingness ...
  6. Clearing Price

    Clearing price is the equilibrium monetary value of a traded ...
Related Articles
  1. 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 ...
  2. Insights

    Fed's Fischer: Aging Population Suppressing Rates

    Federal Reserve Vice Chairman Stanley Fischer said the aging population and slow investment is keeping rates suppressed.
  3. Insights

    How supply and demand affects inelastic goods

    Find out how the laws of supply and demand function for goods and services that are considered highly inelastic, including goods not yet discovered.
  4. Insights

    Do Deflationary Shocks Help Or Hurt The Economy?

    Find out how deflationary shocks can both benefit and hurt consumers and businesses.
  5. Investing

    6 Books for Rental Property Investors

    Whether you are already an owner of rental properties or are looking to invest in rentals, these six books can help you learn how to be a better investor.
  6. Small Business

    Public Relations: Offering Businesses A Competitive Advantage

    To maximize the sales potential of any business, a public relations program should be part of the master marketing plan.
  7. Investing

    Effect of Fed Fund Rate Hikes on Oil

    Find out how oil markets might react to an interest rate hike by the Federal Reserve, and why consumers and bondholders could love a rising interest rate.
  8. Insights

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
RELATED FAQS
  1. What is the difference between a dominant strategy solution and a Nash equilibrium ...

    Dive into game theory and the Nash equilibrium, and learn why the equilibrium assumptions about information are less important ... Read Answer >>
  2. Why are there no profits in a perfectly competitive market?

    See why economic profits are theoretically impossible in a perfectly competitive market and why some economists use perfect ... Read Answer >>
  3. How does a monopoly contribute to market failure?

    Read a simple overview of the theory of market monopoly, where it originated and some contemporary challenges to the classical ... Read Answer >>
  4. What is the difference between a capital good and a consumer good?

    Learn to differentiate between capital goods and consumer goods, determined by how those goods are used, and see why capital ... Read Answer >>
  5. How can I calculate a company's forward p/e in Excel?

    Discover why trading volume is higher when the price of a security changes. Supply and demand is the mechanism through which ... Read Answer >>
Trading Center