Positive Externalities and Public Goods
Read this chapter to learn more about public goods and the intervention of the government in correcting market failures. Pay attention to the concepts of externalities (both positive and negative externalities).
Introduction to Positive Externalities and Public Goods
Key Terms
free rider
those who want others to pay for the public good and then plan to use the good themselves; if many people act as free riders, the public good may never be provided
intellectual property
the body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions
nonexcludable
when it is costly or impossible to exclude someone from using the good, and thus hard to charge for it
nonrivalrous
even when one person uses the good, others can also use it
positive externalities
beneficial spillovers to a third party or parties
private benefits
the dollar value of all benefits of a new product or process invented by a company that can be captured by the investing company
private rates of return
when the estimated rates of return go primarily to an individual; for example, earning interest on a savings account
public good
good that is nonexcludable and nonrivalrous, and thus is difficult for market producers to sell to individual consumers
social benefits
the dollar value of all benefits of a new product or process invented by a company that can be captured by other firms and by society as a whole
social rate of return
when the estimated rates of return go primarily to society; for example, providing free education