How do externalities influence the provision of public goods in an economy with limited resources?

Externalities are effects of a decision that impact people who did not choose to be involved, and they can significantly influence public goods. For example, when a factory pollutes a river, the community suffers from dirty water, which is a negative externality. This situation can make it harder to provide public goods, like clean water or parks, because resources are used up dealing with the pollution rather than improving public services. In an economy with limited resources, the government might have to spend more on cleaning up pollution instead of investing in public goods that benefit everyone. Ultimately, negative externalities can reduce the overall quality of life and limit the availability of essential services.