Answer to Question #59882 in Economics of Enterprise for akan
A good or service could have significant externalities, where gains or losses associated with the product, production or consumption of a product because it differs from the private cost.
A public good is a good that is both non-excludable and non-rivalrous in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others
In order to reduce or eliminate market failures, governments can choose two basic strategies:
1) Use the price mechanism (increasing the price of ‘harmful’ products, through taxation, and providing subsidies for the ‘beneficial’ products).
2) Use legislation and force (banning cars from city centers, or having a licensing system for the sale of alcohol, or by penalising polluters, the unwanted behavior may be controlled).
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