Final answer:
Provo's regulation on parking highlights government failure due to negative externalities' management being unpopular despite being designed to correct market inefficiencies. The challenge lies in balancing the theoretical efficiency of government intervention with the public's preferences and acceptance.
Step-by-step explanation:
Provo's decision to regulate parking near campus because of negative externalities yet facing unpopularity for the program exemplifies government failure. This scenario implies that the optimal policy, despite being efficient in theory, does not align with the public's values and preferences for personal freedom to park. It is a demonstration that government intervention can be subject to limitations, where the externalities being corrected might result in new issues or discontent among the citizens, highlighting imperfections in government action.
While the concept of marketable permit programs and taxes is designed to address issues like a negative externality, the situation in Provo shows that effective policy is not just a matter of economics but also of public perception and acceptability. The balance between efficiency and freedom is delicate, and enforcement of regulations addressing negative externalities can sometimes be problematic if not supported by the public.
This complex relationship between market failure, public goods, and government intervention can also be observed in the provision of goods that markets fail to provide, such as roads and libraries. Government actions in these instances aim to enhance free market efficiency but must be weighed against the actual strengths and weaknesses of real-world governments and markets.