People depend on the government to provide public goods. A public good is a shared good or service for which it would be inefficient or impractical to make consumers pay individually. Examples of public goods are roads, dams, and national defense. If the government did not provide these things, individuals or companies would have to themselves. But for an individual person or company, the cost of building a highway outweighs the benefits. Another characteristic of a public good is that it is difficult to exclude non-payers. Once a road is built, it is difficult to keep some drivers from using it. Situations such as road-building, in which the free market does not efficiently provide resources to solve a problem, are known as market failures.

     Public goods are paid for by the public sector. The public sector is the part of the economy which involves government transactions. The private sector involves transactions of individuals and businesses.

     Externalities can affect the public and private sector. An externality is an economic side effect of a good or service. The government encourages the creation of positive externalities. Education, for example, benefits students, yet society as a whole benefits from an educated population. The government also works to limit negative externalities, such as automobile pollution.