3.3 Providing Public Goods

What is a public good?

A commodity or service that is provided without profit to all members of a society, either by the government or a private individual or organization. For example roads, dams, and national defense.

How can the government encourage positive externalities?

By establishing government standards for cleaner air, for example, and designing agricultural extension programs for greater crop yields.

How can the government limit negative externalities?

By for example issuing fines to reduce pollution and zoning laws to reduce overcrowding.

Examples of private sector employment areas

Financial services Law firms Estate agents Newspapers or magazines Veterinarians Aviation Hospitality

Examples of public sector employment areas

Health and care Teaching Emergency services Armed forces Civil service City councils

People depend on the government to provide for public goods. What would happen if the government did not provide them?

Individuals or companies would then have to provide for public goods, but the cost of building them would be way bigger than the benefits. Another issue is that it is not easy to exclude people who don't pay. Once a road is built it is difficult to keep some drivers from using it.

Can public goods yield positive externalities (positive side effects)?

Most public goods fulfill their main beneficial function while also providing side benefits or economic growth even to those who do not pay for the goods.

What does the government attempt to do whenever we have a market failure?

The government attempts to provide goods and services when the market fails to do so efficiently.

What is the difference between public sector and private sector?

The private sector is the part of the economy that is run by individuals and companies for profit and is not state-controlled. Companies and corporations that are government-run are part of what is known as the public sector.

What are externalities?

These are the economic side effects of a good or service. The government encourages the creation of positive externalities. Education, for example, benefits students, yet society as a whole benefit from an educated population. The government also works to limit negative externalities, such as automobile pollution.

What is the free rider problem and why is a type of market failure?

When, for example, people are not willing to pay for a new freeway in their area, but if it's built, they would use it anyway. Free riders consume what they do not pay for. Therefore, If the government stopped collecting taxes and relied on voluntary contributions, many public services would not exist.

What are market failures?

Whenever there is a need, normally the market offers solutions as business owners are interested in selling and making profits. However, sometimes highly-costly needs are very difficult to afford and the market fails to meet such needs.