Learning Objectives

After reading this chapter, you should be able to

8.1 Define externalities, and explain how the market system can sometimes fail to produce efficient outcomes.

8.2 Describe what is meant by optimal pollution levels.

8.3 Define and explain the Coase theorem.

8.4 Define and explain public goods and the free-rider problem.

8.5 Define and explain asymmetric information, adverse selection, and moral hazard.