Furthermore, because the good must be subsidized by taxpayers, each individual typically shoulders a larger tax burden, regardless of whether he or she uses the good personally. Because less money is available, money has a higher marginal utility to the individual, whose demand for the good in the private marketplace is therefore decreased even further.

As an illustration, suppose that "free" education is provided through the government and financed by taxpayers in general. Aside from possible miscellaneous expenses such as textbooks, no marginal cost is incurred by a parent who decides to send a child to a state-operated school. In such a context, few parents will elect to purchase education from the private sector. Even though many of them may consider the subsidized service to be somewhat inferior in quality, it is nevertheless offered at no marginal cost and provides at least a portion of the same services that could be purchased from a private school. The marginal utility of a private school is therefore greatly diminished (

In addition, because of the money they have lost to taxes supporting state education (alongside similar projects), each money unit has higher marginal utility to parents, so that most can ill afford the additional expense of private education. Consequently, in this context, the only purchasers of private education will be the wealthiest and most fastidious.

^Previous