1. E. Napp Providing Public Goods In this lesson, students will examine the government’s role in providing public goods. Students will be able to define and/or identify the following terms: Public Good Free Rider Positive Externality Negative Externality

2. E. Napp Americans need roads but no private company creates roads.

3. E. Napp A Market Failure A market failure occurs when the market does not provide the goods or services consumers need. Of course, Adam Smith suggested that the market would always fix itself but that doesn’t always happen. Coca-Cola creates soda but not libraries. Why?

4. E. Napp A public library doesn’t make a profit.

5. E. Napp Public Goods When a market failure occurs, people expect the government to provide the needed good or service through the use of tax dollars. A public good is a good or service created by the government through tax dollars. Public schools, military defense, and public libraries are examples of public goods.

6. E. Napp A public school is a public good.

7. E. Napp Free Rider A free rider is a person who would not choose to pay for a good or service but would use it anyway. To ensure that citizens are not free riders, the government insists that all citizens pay their taxes. It is important to note that public goods are paid for with tax dollars.

8. E. Napp If you watched Sesame Street but never made a donation to PBS, you were a free rider.

9. E. Napp Negative Externalities Sometimes a good or service has an unintended side effect. This is called an externality. An example of this is pollution from automobiles. The manufacturers of automobiles did not intend to pollute the atmosphere. Therefore, pollution is a negative externality.

10. E. Napp Automobile pollution is a negative externality. It is a negative side effect.

11. E. Napp Positive Externalities Sometimes a good or service has a positive side effect. An example of a positive externality is the cancer fighting properties in tomato sauce. Tomato sauce was created for spaghetti not to fight cancer.

12. E. Napp Tomato sauce is a positive externality.

13. E. Napp The government tries to create positive externalities in its creation of public schools.

14. E. Napp Questions for Reflection: What is a market failure? How does the government address a market failure? Provide two examples of public goods. What does the government do to prevent citizens from being free riders? Provide examples of positive and negative externalities.