Part D | When markets aren't the right tool

In Part A we set up the landscape of what's possible. But we left with the question where on the PPF is best. In Part B we introduced markets as a way to arbitrate which point on the PPF we should choose. And we showed that competitive markets without externalities deliver a quantity that maximizes Total Surplus.

But not every market is competitive or without externalities. In Part C we introduced the concept of Market Failure, when markets deliver a quantity that society does not want. We then introduced a type of government policy to correct this failure.

In Part D we take this idea further, to examine non-excludable goods, goods which in some sense are entirely externalities, with no private component. Here we need to use a more general approach to behavior in settings with strategic interaction, which we call game theory.