Figure 11-4 illustrates the impact of a positive externality on quantity and price. In our example, when Andy decided to
get his shot, he paid for his vaccine as a private benefit. His private benefit becomes a social benefit when he comes into
contact with society. If the costs of the benefit were realized by society, the benefit would have a higher price and a
higher quantity.
If the government mandated the vaccine, then all members of society would have to get one as well. This would cause
the demand curve to shift to the right because all members of society would now bear the cost of the benefit (see
Figure 11-5).
Figure 11-5The demand curve shifts toward the marginal social benefit curve because society is now forced to pay the costs to
receive the benefits of the vaccinations.
Public Goods
Public goodsare goods that are funded by taxpayers for the public. Public goods do not exclude anyone from using
them. Whether or not someone is a taxpayer, that individual can still drive the highways, go to the park, and take
advantage of other public goods. Public goods create a dilemma for government officials: Would the government be
better off spending the money in the private sector? Or should it spend the resources on the public sector? Remember
that every decision has an opportunity costand an opportunity benefit. To find a resolution, the government performs
a cost-benefit analysis to decide what sector to spend the money on.
Tragedy of the Commons
Some things in this world are nonexclusionary; in other words, they can be used by anyone and everyone. Rivers,
trees, and oxygen are examples of nonexclusionary things because the rights to them are held by everyone. The down-
side to this is that as long as everyone can use them, anyone can destroy them—this is known as the tragedy of the
commons.
We normally take care of things we pay for. Think about it; when was the last time you worried about damage to a pub-
lic good? You are more likely to be concerned about damage to your own property before worrying about anything else
because you have directly paid for it. When individuals directly pay for and directly receive benefits from goods, they
tend to take better care of that good.
Consider this example of a public good: Freeways are often littered with trash because individuals do not directly bear
the costs to drive on the freeways. One way some governments have tried to counter this dilemma is through the use of
incentives. Some states have an adopt-a-highway program. This program allows the private sector (firms and individuals)
Q^2 QuantityPriceQ^1P^1P^2MSBDemandThe Government’s Role, Externalities, and Efficiency