Q: Why does the government provide public goods?

Economics Quiz Who wrote, “In this world nothing is certain but death and taxes”? Who was the author of the Wealth of Nations? Which US president used the motto, “It’s the economy stupid.” What does TNSTAAFL mean?

Economics Quiz with Answers Who wrote, “In this world nothing is certain but death and taxes”? Benjamin Franklin Who was the author of the Wealth of Nations? Adam Smith Which US president used the motto, “It’s the economy stupid.” Bill Clinton What does TNSTAAFL mean? There’s no such thing as a free lunch

I. Public Goods Public goods and services give benefits to payers and non-payers. Characteristics of public goods: 1. Non-excludable - impractical or impossible to exclude non-payers 2. Non-rival – consumers can consume the good simultaneously

II. Free Rider Problem Producers (businesses) have little/no incentive to produce public goods because… B. Free riders are examples of a market failure –

Laissez Fire http://www.youtube.com/watch?v=PwJrPa8Ps7A

“BP: In Deep Water” http://www.youtube.com/watch?v=YixZuscdEao&feature=related

Externalities 1. Economic side effects – can be created by both public and private sectors a. Can be positive or negative Ex: a new freeway is built Positive: gas stations located near exits will make higher profits $$ Negative: Pollution caused by the cars on the freeway

2. Government encourages the creation of positive externalities Ex. education and tries to limit negative externalities Ex. EPA regulates pollution