1. PUBLIC GOODS AND EXTERNALITIES
MARKET FAILURES
PUBLIC GOODS AND EXTERNALITIES

2. Market Failures Market Failures
The free-market doesn’t distribute resources efficiently
Free riders
No profit incentive for producers
Consumers unable or unwilling to pay individually if given the choice. Yet they can harm or be harmed by not receiving the good.

3. 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

4. Public goods are paid for collectively by all tax paying citizens

5. 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

6. Why governments intervene – the good news
Consumer information
Public Health
Public Safety
Well-being of society

7. Government Interference – the bad news
High costs to business resulting in lower profits and slow growth
Higher costs to consumers
Higher taxes for producers & consumers

8. 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