Chapter Outline

16.1 Basic Functions of Government

16.2 The Case for Free Markets

16.3 Market Failures

16.4 Broader Social Goals

16.5 Government Intervention

AFTER STUDYING THIS CHAPTER YOU WILL BE ABLE TO

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 Learning Objectives (LO)

1. discuss the importance of the government’s “monopoly of

violence.”

2. describe the “informal” defence of free markets.

3. explain why externalities lead to allocative inefficiency.

4. explain why public goods are underprovided by private markets.

5. describe how information asymmetries can lead to market

failures.