Module 10: Public Goods and Externalities

Why this module matters

It helps learners connect Module 10: Public Goods and Externalities to the broader course path in Principles of Microeconomics — Part 7: Public Goods & Externalities. Learners build working familiarity with Public good, Private good, and Common-pool resource. The lessons stay grounded in concrete examples and explanations tied to this module's core topics. Learners can check understanding through 21 quiz questions t….

What this module covers

• Public good
• Private good
• Common-pool resource
• Public goods and externalities are two key instances in which the market, left to its own devices, will not produce the efficient result.
• Since there is no way to keep non-payers out, there is no incentive to pay, and therefore it is diffcult to fund public goods.
• Classify goods according to whether they are excludable and whether they are diminishable or rival in nature.

Topical takeaways

• Public goods and externalities are two key instances in which the market, left to its own devices, will not produce the efficient result.
• Since there is no way to keep non-payers out, there is no incentive to pay, and therefore it is diffcult to fund public goods.
• Note that a public good is not necessarily provided by the government.
• Moving along to the next questions, demand for a public good is constructed differently because everybody has the same amount of the public good.
• Minor stylistic cleanup (narrator tags, cue numbers) applied by Qualora; the underlying text is verbatim from Professor Solnick's lecture.
• So the progressive tax structure makes sense where people who earn more are taxed at a higher percentage because that's how we can get enough money to have a level of public goods that the wealthier people would want.

Lesson arc

1. Module 10 Overview: Public Goods and Externalities (14 min)

   Public goods and externalities are two key instances in which the market, left to its own devices, will not produce the efficient result.

   • Public goods and externalities are two key instances in which the market, left to its own devices, will not produce the efficient result.
   • Since there is no way to keep non-payers out, there is no incentive to pay, and therefore it is diffcult to fund public goods.
   • Note that a public good is not necessarily provided by the government.
2. Video 1: Here's our practice worksheet on public goods (6 min)

   Moving along to the next questions, demand for a public good is constructed differently because everybody has the same amount of the public good.

   • Moving along to the next questions, demand for a public good is constructed differently because everybody has the same amount of the public good.
   • Minor stylistic cleanup (narrator tags, cue numbers) applied by Qualora; the underlying text is verbatim from Professor Solnick's lecture.
   • So the progressive tax structure makes sense where people who earn more are taxed at a higher percentage because that's how we can get enough money to have a level of public goods that the wealthier people would want.
3. Video 2: - Here's how we think about externalities in our demand and supply (4 min)

   Here's how we think about externalities in our demand and supply This lesson is a transcript of Professor Sara Solnick's , Video 2 lecture.

   • Here's how we think about externalities in our demand and supply This lesson is a transcript of Professor Sara Solnick's , Video 2 lecture.
   • And you can see that our quantity based on the private demand curve only is less than, we really want to be here.
   • So here, you know, people are doing it as long as the marginal benefit reflected in the demand curve is greater than or equal to the marginal cost.
4. Video 3: use this handout to see how the Coase theorem works (7 min)

   So if Smith is not required to use the filter, what the Coase theorem tells us is Smith is still gonna use the filter, because Jones is gonna pay...

   • So if Smith is not required to use the filter, what the Coase theorem tells us is Smith is still gonna use the filter, because Jones is gonna pay...
   • If Smith is required to use the filter, he's still not gonna use the filter.
   • Minor stylistic cleanup (narrator tags, cue numbers) applied by Qualora; the underlying text is verbatim from Professor Solnick's lecture.
5. Video 4: let's go over the worksheet (5 min)

   Minor stylistic cleanup (narrator tags, cue numbers) applied by Qualora; the underlying text is verbatim from Professor Solnick's lecture.

   • Minor stylistic cleanup (narrator tags, cue numbers) applied by Qualora; the underlying text is verbatim from Professor Solnick's lecture.
   • When we have externalities, it is a misallocation of resources and the reason some of these answers look good for a positive externality so with a positive externality we have less than optimal level of production but that wasn't specified.
   • For these next questions, we're looking at the diagram and private incentives are going to put us here.

Key concepts

• Public good
• Private good
• Common-pool resource
• Externality
• Pigouvian tax
• Coase theorem
• Free-rider problem

Practice and assessment

Learners reinforce this module through 21 quiz questions and a supporting glossary covering 7 key terms, with practice centered on Public goods and externalities are two key instances in which the market, left to its own devices, will not produce the efficien….

Concept glossary

Public good

A good that is non-rival (one person's use doesn't reduce another's) and non-excludable (non-payers can't be kept from using it).

Private good

A good that is rival and excludable — the normal case for most market transactions.

Common-pool resource

A good that is rival but non-excludable (e.g., an ocean fishery, a public lake). Subject to overuse.

Externality

A cost or benefit imposed on third parties not involved in the market transaction.

Pigouvian tax

A tax levied to correct a negative externality by making producers or consumers bear the full social cost.

Coase theorem

Under well-defined property rights and low transaction costs, private parties can negotiate to an efficient outcome regardless of initial assignment.

Free-rider problem

The tendency of individuals to under-contribute to the provision of a public good, hoping others will pay.

Continue to the full course

Principles of Microeconomics — Part 7: Public Goods & Externalities is the parent course for this module. Use the full course page for pricing, certificate details, and the full curriculum.