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Explain the impact of external costs and external benefits on the production of public verses private...

Explain the impact of external costs and external benefits on the production of public verses private goods.

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Public goods are non-rival and non-excludable while the private goods are rivalrous and excludable. The impact of external costs and external benefits effects the allocation of resource allocation. When the negative externality (an external cost) is not taken into the consideration it causes a more production at a higher price, leading in an over-allocation of resources. In a similar way the positive externality (an external benefit) can cause an under-allocation of resources. When the external cost is more than the external benefit there will be a less production of private goods while will have no impact on public goods because most of the public goods are subsidized by the government and these are non-rival and non-excludable

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