B Back 7. A Back 8. B Back 9. A Back 10. Short Answer Questions 1.
Environmental quality is an example of a public good.
Public goods differ from private goods due to the characteristics of nonexcludability and nonrivalry in consumption. Public goods cannot be divided into individual units for sale, it is usually not possible to exclude individuals from consuming a public good and one person's consumption of a public good does not affect the quantity available for someone else to consume. Thus, private markets do not have an incentive to produce public goods. Ps and Qs are the socially efficient price and level of output. The potential loss in social welfare attributable to a failure to internalize the externality is illustrated by the shaded area in the graph.