In this module, 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.

Let’s return to one of the questions we posed at the beginning of this module. Why does it make sense for society to subsidize healthcare? It’s because healthcare has external benefits—people at large benefit from living in a community of healthy people. Healthy people are less likely to spread disease to others. Prevention of disease often costs less than treatment. If someone in a community gets sick due to lack of access to regular healthcare, the rest of the community may end up paying more through taxes when the ill person shows up at the local emergency room or hospital.