Example
Let’s apply this efficiency condition to national defense.
Assume that when we increase the production of guns
(national defense) by one, we must reduce the production
of butter (basic consumer products) by one pound (the
marginal rate of transformation is unity). Guns used for
national defense are a public good. We consider a simple
economy with two individuals: Crusoe and Friday.
Crusoe is willing to give up one-third of a pound of butter
for an extra gun, but his one-third pound alone does not
buy the gun. Friday is willing to give up two-thirds of a
pound of butter for an extra gun. The total amount of
butter that this small society would be willing to give up,
were the government to buy one more gun, is 1/3 + 2/3 =
1.