3.3 Public Goods and Externalities CONTEMPORARY ECONOMICS 5/14/2018 3.3 Public Goods and Externalities Objectives Describe and provide examples of four types of goods. Define negative externalities and positive externalities, and discuss why government intervenes in such markets. LESSON 3.3

3.3 Public Goods and Externalities Key Terms private goods public goods quasi-public goods open-access goods negative externalities positive externalities

Private Goods Private goods have two important features: 3.3 Public Goods and Externalities Private Goods Private goods have two important features: 1. the amount consumed by one person is unavailable to others 2. nonpayers can easily be excluded A private good is both rival and exclusive.

3.3 Public Goods and Externalities Public goods are goods that, once produced, are available to all, but nonpayers are not easily excluded. A public good is both nonrival and nonexclusive. Once produced, public goods are available for all to consume, regardless of who pays and who doesn’t.

3.3 Public Goods and Externalities Quasi-Public Goods Goods that are nonrival but exclusive are called quasi-public goods.

3.3 Public Goods and Externalities Open-Access Goods Goods that are rival but nonexclusive are called open-access goods. By imposing restrictions on open-access resource use, governments try to keep renewable resources from becoming depleted.

3.3 Public Goods and Externalities Externalities are by-products of production and consumption. Some externalities are positive and others are negative.

Negative Externalities 3.3 Public Goods and Externalities Negative Externalities Negative externalities generally are by-products of production or consumption that impose costs on third parties. Example—pollution

Correcting for Negative Externalities 3.3 Public Goods and Externalities Correcting for Negative Externalities Government restrictions can improve the allocation of open-access resources. Examples of government restrictions Antipollution laws Water quality restrictions Noise restrictions Local zoning laws

Positive Externalities 3.3 Public Goods and Externalities Positive Externalities Positive externalities occur when the by-products of consumption or production benefit third parties. Example—education