PUBLIC GOODS AND EXTERNALITIES MARKET FAILURES PUBLIC GOODS AND EXTERNALITIES

Public Good a shared good or service in which it would be impractical or inefficient to To make consumers pay individually To exclude those who did not pay

Public goods are paid for collectively by all tax paying citizens

Cost & Benefits Governments act in the public interest when they determine the benefits of a policy outweigh the costs. Criteria The benefit is less to each individual than the cost if they were to each pay individually The total benefits to society are greater than the cost

Market Failures Public Goods are also sometimes known as The free-market doesn’t distribute resources efficiently Free riders No profit incentive for producers Consumers unable or unwilling to pay

Externalities Positive externality Negative externality Side effect that benefits someone other than the producer or consumer Side effect that costs someone other than the producer or consumer