Providing Public Goods
1.Public Goods
-Public goods- a shared good or service for which it would be inefficient or impractical (1) to make consumers pay individually and (2) to exclude non payers. Dams are another example of public goods.
2. Costs & Benefits
-When a good or service is public, (1) the benifit to each individual is less than the cost that each would have to pay if it were provided privately, and (2) the total benefits to society are greater then the total cost.
-Public Sector- the part of the economy that involves the transactions of the government.
-Private Sector- the part of the economy that involves transactions of indivduals and businesses, would have little incentive to produce public goods.
3. Market Failures
-Free riders are examples of Market Failure, situation in which the market, on its own, does not distribute resources efficently.
4. Externalities
-An externality is an economic side effect or a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume.
-Positive Externalities- the private sector can create positive externalities.
-Negative Externalities- it can cause parts of the cost of producing a good or service to be paid for by someone other then the producer.
5. Government's Goals
-the government encourages the creation of positive externalities.
-the government aims to limit negative externalities, such as acid rain.
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