After reading this chapter, students should be able to:

• Explain why competitive markets may not allocate resources efficiently when externalities are present.
• Discuss the nature and limitations of private negotiation as a remedy for market failures associated with externalities.
• Evaluate various public policies that are designed to address externalities.
• Understand why common property resources tend to be overused, and analyze ways that such problems can be corrected.
• Identify the characteristics of a good that can justify public provision.