•  Define and enforce property rights.
•  Establish a monetary system.

• Create and enforce anti-trust laws.
• Regulate natural monopolies.

• Market that does not provide insufficient quantities for public goods and services.
• Private Goods and Services
  • Rival in consumption
  • Excludability
• Public Hoods and Services
  • Non Rival
  • Non Excludability

• Reduce negative externalities.
• Encourage increased production of goods and services that have positive externalities.

• Reduce unemployment and inflation, and promote economic growth
• Fiscal Policy: raising/lowering taxes or by government spending.
• Monetary Policy: Controlling the money supply or by changing interest rates.

• Redistribute income from people who have higher income to those with lower incomes
• Benefits received from income: Sales tax (regressive) and Income tax (progressive)

If the physical science of manmade global warming is correct, then policymakers are confronted with a massive negative externality. When firms or individuals embark on activities that contribute to greater atmospheric concentrations of greenhouse gases, they do not take into account the potentially large harms that their actions impose on others. As Chief Economist of the World Bank Nicholas Stern stated in his famous report, climate change is “the greatest example of market failure we have ever seen.”…