An example of a public good is a fireworks display. Nobody can be excluded from enjoying them, and this leads to a “free-rider” problem. But there are also an “economies of scale” aspect of it: watching a grand fireworks gives much more pleasure than just a few sparkles in a backyard – which leads to the fact that the best fireworks display are those produced by the government (maybe?).

a) What do you say to the idea of a city government imposing a tax on those who watch the fireworks? Give me two reasons to support it, and two reasons not to support it.

b) Aside from the fireworks case, what are some specific recent major events or issues that could be categorized as market failures? Explain the nature of the market failure. You need not limit this to just the U.S. situation.