Final answer:
In Friedman's argument, 'neighborhood effects' refer to positive externalities in a neighborhood, such as higher property values and less crime. 'Paternalistic concerns' describe government interventions made to protect or control citizens in a manner similar to a parent's guidance.
Step-by-step explanation:
In Friedman's argument, by "neighborhood effects," he refers to the various positive externalities or spillover effects that result from an individual's actions that benefit others in the neighborhood, like higher property values, less crime, and overall improved community welfare. One example could be when a resident invests in their property, not only improving their own living conditions but also enhancing the neighborhood's appearance and safety, potentially leading to benefits for all residents in the area.
The term "paternalistic concerns" in Friedman's discussion refers to actions by the government that are driven by a paternalistic desire to protect or control citizens, much like a parent might guide and protect a child. This often involves government intervention in sectors such as education where decisions are made with the intent of guiding societal behavior in what is perceived as a beneficial direction.