Key Terms

external benefits (or positive externalities): beneficial spillovers to a third party of parties, who did not purchase the good or service that provided the externalities

free rider: those who want others to pay for the public good and then plan to use the good themselves; if many people act as free riders, the public good may never be provided

intellectual property: the body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions

nonexcludable: when it is costly or impossible to exclude someone from using the good, and thus hard to charge for it

nonrivalrous: even when one person uses the good, others can also use it

positive externalities: beneficial spillovers to a third party or parties

private benefits: the benefits a person who consumes a good or service receives, or a new product’s benefits or process that a company invents that the company captures

private rates of return: when the estimated rates of return go primarily to an individual; for example, earning interest on a savings account

public good: good that is nonexcludable and non-rival, and thus is difficult for market producers to sell to individual consumers

social benefits: the sum of private benefits and external benefits

social rate of return: when the estimated rates of return go primarily to society; for example, providing free education

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