Summary

The goal of this module was to enable you to explain the similarities and differences between public goods and private goods and understand the role for them in the economy.

You learned how to:

• Contrast between public and private goods
• Explain the concept of free riders
• Define and give examples of positive and negative externalities
• Analyze the efficacy of government policies to lessen negative externalities and analyze how the government promotes positive externalities
• Analyze the impact of market-based solutions to negative externalities

Examples

We learned that governments can either promote the supply of positive externality goods or inhibit the supply of negative externality goods through regulation or through financial incentives—subsidies on the former and charges on the latter.

Primary School Children by World Bank Photo Collection, CC-BY-NC-ND.

Let’s return to one of the questions from the Why it Matters feature. Why does it make sense for society to pay for public education? It’s because education has external benefits—people at large benefit from having an educated population, even beyond the personal benefits they receive from education. Would you rather have educated or ignorant voters? Imagine the benefits a cancer patient would gain if a publically educated scientist discovered the cure, or even new treatment options, for cancer.