Chapter 5: Market Failures: Public Goods and Externalities
1. Differentiate between demand-side market failures and supply-side market
2. Explain the origin of both consumer surplus and producer surplus, and explain
how properly functioning markets maximize their sum, total surplus, while
optimally allocating resources.
3. Describe free riding and public goods, and illustrate why private firms cannot
normally produce public goods.
4. Explain how positive and negative externalities cause under- and overallocations
5. Show why we normally won't want to pay what it would cost to eliminate every
last bit of a negative externality such as air pollution.