LESSON 3 3 Objectives Public Goods and Externalities

LESSON 3. 3 Objectives Public Goods and Externalities Describe and provide examples of four types of goods. Define negative externalities and positive externalities, and discuss why government intervenes in such markets. 1 CONTEMPORARY ECONOMICS: LESSON 3. 3 © SOUTH-WESTERN

LESSON 3. 3 Key Terms Public Goods and Externalities private goods public goods quasi-public goods open-access goods negative externalities positive externalities 2 CONTEMPORARY ECONOMICS: LESSON 3. 3 © SOUTH-WESTERN

Private Goods �Private goods—goods with two features 1. the amount consumed by one person is unavailable to others 2. nonpayers can easily be excluded �Rival �Exclusive 3 CONTEMPORARY ECONOMICS: LESSON 3. 3 © SOUTH-WESTERN

Public Goods �Public goods—goods that, once produced, are available to all, but nonpayers are not easily excluded. �Both nonrival and nonexclusive. �Available for all to consume, regardless of who pays and who doesn’t. 4 CONTEMPORARY ECONOMICS: LESSON 3. 3 © SOUTH-WESTERN

Quasi-public Goods �Goods that are nonrival but exclusive are called quasi-public goods. 5 CONTEMPORARY ECONOMICS: LESSON 3. 3 © SOUTH-WESTERN

Open-access Goods �Goods that are rival but nonexclusive are called open-access goods. �By imposing restrictions on open-access resource use, governments try to keep renewable resources from becoming depleted. 6 CONTEMPORARY ECONOMICS: LESSON 3. 3 © SOUTH-WESTERN

Negative Externalities �Negative externalities generally are byproducts of production or consumption that impose costs on third parties. 7 CONTEMPORARY ECONOMICS: LESSON 3. 3 © SOUTH-WESTERN

Correcting for Negative Externalities �Government restrictions can improve the allocation of open-access resources. �Antipollution laws �Water quality restrictions �Noise restrictions �Local zoning laws 8 CONTEMPORARY ECONOMICS: LESSON 3. 3 © SOUTH-WESTERN

Positive Externalities �Positive externalities occur when the by -products of consumption or production benefit third parties. �Education generates positive externalities. 9 CONTEMPORARY ECONOMICS: LESSON 3. 3 © SOUTH-WESTERN