1. 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

2. 3.3 Public Goods and Externalities
Key Terms
private goods
public goods
quasi-public goods
open-access goods
negative externalities
positive externalities

3. 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.

4. 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.

5. 3.3 Public Goods and Externalities
Quasi-Public Goods
Goods that are nonrival but exclusive are called quasi-public goods.

6. 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.

7. 3.3 Public Goods and Externalities
Externalities are by-products of production and consumption.
Some externalities are positive and others are negative.

8. 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

9. 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

10. 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