Markets are heralded as effective means for coordinating production and exchange with minimal interference on the part of government. If, for example, there is a sudden increased demand for rocket scientists, then today's rocket scientists will begin to receive higher salaries, which will transmit a signal to others to acquire the requisite training as earnings are now greater compared to other similarly skilled professionals. In a well-functioning market economy, high wages and/or profits direct resources and efforts to what society values highly relative to its costs. As mentioned earlier, markets will not function properly when property rights are not defined or protected, or else external effects and/or public goods are present. In these situations, incentives are often perverse so that self-interested actions need not achieve a desirable or efficient assignment of resources.

Consider surface-level ozone in our cities' air caused primarily by automobile emissions of nitrogen oxides (NOx). Reducing these emissions is a pure public good, since a given cutback is enjoyed by all (nonexcludability applies), no matter who has reduced them. The benefits from this reduction are also nonrival, because one person can breathe the cleaner air without adding NOx pollutants that would limit another's enjoyment of the improved air quality. It is in your private interests to free ride on the curtailment of others. Suppose that I were to conduct a survey to ascertain what the cleaner air is worth to you so that I could advise a government about its pollution policy.