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Economic theory

When markets fail

Spillovers, public goods, missing information, and what a government can do about them.

Start: Public goods

The 10 modules

Each module teaches one idea: a definition, how it works, and questions through the page. Take them in any order.

1Public goodsTell a public good from a private oneConcept · 6 min · Free 2Negative externalitiesShow why a market over-produces when there is an external costDiagram · 7 min 3Positive externalitiesShow why a market under-produces when there is an external benefitDiagram · 7 min 4Merit and demerit goodsTell a merit good from a demerit good, and both from a public goodTell them apart · 7 min 5Asymmetric informationSay what asymmetric information is and how it breaks a marketConcept · 6 min 6An indirect tax on a diagramShow what an indirect tax does to price and quantityDiagram · 7 min 7SubsidiesShow what a subsidy does to price and quantityDiagram · 7 min 8Price ceilings and price floorsSay what a binding ceiling or floor does to a marketDiagram · 6 min 9Tradable pollution permitsWeigh permits against a tax as a way of cutting pollutionDebate · 6 min 10Government failureSay what government failure is and name the forms it takesConcept · 7 min