Chapter three

In chapter three Wheelan demonstrates how externalities can appear simple at first but get more complicated the more you look into them. The government is useful to the economy in that it offers a structure for settling externalities through laws and court systems. Wheelan uses the example of whether he should pay his neighbor for silence or should his neighbor pay him for the right to play the bongos. The government also provides services such as parks and polices forces which would not likely exist in the same way under private ownership because a private owner would not derive significant utility from offering public services. A government may facilitate solving externalities, offer public services, and redistribute wealth, but there is the question of at what point is the government too involved. Wheelan describes the questions concerning wage distribution as needing "philisophical or ideological answers" rather than economic ones, meaning there is an even wider range of opinions on the matter. The key to success seems to be finding a balance of government involvement and ideals where most parties are satisfied and the economy is provided with structure without being stifled.