chapter 18Public Goods and the Environment

Up to this point, in both micro and macro chapters, we have focused on goods and services that are easily (and often efficiently) exchanged in markets. These are referred to as private goods. However, there are some goods and services, called public goods, that cannot be efficiently exchanged in markets. In this chapter, we return our focus to micro product markets and explore the difference between private goods and public goods, and develop the concept of positive and negative externalities. Because public goods and externalities represent market failures, we also discuss ways in which government can attempt to remedy these market failures and provide goods that markets cannot provide.


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