{"id":6536,"date":"2018-02-05T15:37:35","date_gmt":"2018-02-05T15:37:35","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-microeconomics\/chapter\/why-it-matters-public-goods\/"},"modified":"2018-05-25T03:14:03","modified_gmt":"2018-05-25T03:14:03","slug":"why-it-matters-public-goods-and-externalities","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/cuny-kbcc-microeconomics\/chapter\/why-it-matters-public-goods-and-externalities\/","title":{"raw":"Why It Matters: Public Goods and Externalities","rendered":"Why It Matters: Public Goods and Externalities"},"content":{"raw":"

Why describe the complications surrounding public goods and externalities in an economy?<\/h2>\r\nDecisions made by firms and individuals in a market often have a spillover effect on other people, whether it be for good (like your neighbor\u2019s sweet-smelling cookies), or for the bad (the smelly paper plant that opened up a mile away). In this module, we learn about these positive and negative externalities, as well as the range of public versus private goods.\r\n\r\nOne of the characteristics of any good or service is its \u201cpublic\" or \u201cprivate\u201d-ness. Goods can be public or private, or anything in between. What does this mean? It\u2019s probably not what you think. It doesn\u2019t primarily mean who provides the product.<\/span> In other words, a good is not private because it is provided by private businesses. A good is not public because it is provided by the government. Rather, private\/public is more a description of how these goods are consumed.\r\n\r\n[caption id=\"attachment_2450\" align=\"alignright\" width=\"326\"]\"Photograph<\/a> Figure 1. <\/strong>National defense is a public good because it benefits everyone in the nation.[\/caption]\r\n\r\nAll of us consume private goods and public goods. There are three basic cases: A private good is one for which the consumer pays all the costs and receives all the benefits. If you buy an apple to eat, no one gets to share any part of the apple that you eat. A public good is one where one person\u2019s consumption doesn\u2019t prevent anyone else from consuming it too. National defense is the classic example\u2013once it\u2019s there, everyone gets the benefits of it. This leads to \u201cfree riding,\u201d where people try to avoid paying for the public good since they\u2019ll get the benefits anyway.\r\n\r\nIn between public and private goods are externality goods (or semi-public goods). In some cases, benefits go beyond the individuals who consumed the externality good. One example is health expenditures. People in a community at large benefit when others get vaccinated against disease, since people won\u2019t be infected by people who are vaccinated. In other cases, costs are imposed on people other than the ones who produced the externality good. Suppose you go to a park for a picnic, and you bring your iPod and external speakers. You play music during the picnic, which others in the park find objectionable. Your music reduces the quality of other park visitors\u2019 experience.<\/span>\r\n