Explain whether the market produces too little, too much, or the right amount of goods with (a) detrimental externalities and (b) public good characteristics.

What will be an ideal response?

For goods with detrimental externalities, the market produces too much; P = private MC, and private MC is below social MC. Using SMC would lead to the socially efficient lower output level. For public good characteristics, the market produces too little. Assuming exclusion of nonpayers is possible, the market will charge a price even though the opportunity cost of an additional user is zero. There will be too few users, from an efficiency standpoint. There will be even greater inefficiency if it is impossible to exclude nonpayers as private firms will be unwilling to provide goods where they cannot prevent free access. (Computer software displays public good difficulties.)