Read this section for a more detailed look at the topic of market failure. Attempt the "Try It” problem before checking your answer.
- Public sector intervention to increase the level of provision of public goods may improve the efficiency of resource allocation by overcoming the problem of free riders.
- Activities that generate external costs are likely to be carried out at levels that exceed those that would be efficient; the public sector may seek to intervene to confront decision makers with the full costs of their choices.
- Some private activities generate external benefits.
- A common property resource is unlikely to be allocated efficiently in the marketplace.