Normally prices determine efficient allocation of resources. However there are goods without prices that need government intervention. These goods can either be excludable (when the property of a good prevents another from using it), rival in consumption (when the property of a good diminishes other people's uses), both, or neither. They are grouped into four categories: private goods, public goods, common resources, and naturalistic monopolies. A problem faced by private markets is the free rider, or the person who receives the benefit without actually paying. For example, someone who watches fireworks shows without actually paying because fireworks are not excludable or rival in consumption.
The government intervenes and creates public goods when private markets are inefficient (from not taking into consideration the externality). Some examples are national defense, basic research (not to be confused with patents!, this instead refers to general knowledge), and fighting poverty via the welfare system, subsidizing the cost of food for those with low income, etc.
This chapter was not that awful. The vocab might be the killer, but not the definitions/concepts. However, I want to go over categorizing different goods as I feel the line often gets hazy.
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