Part C | Externalities
// externalized costs and benefits lead to inefficient markets //Part B showed us how markets coordinate perfectly when conditions are right, delivering efficient outcomes that maximize total surplus. But what happens when those perfect conditions break down? Part C reveals the dark side of markets—when private incentives misalign with social welfare, creating externalities and market failures that require government intervention to restore efficiency. You'll discover how pollution, taxes, and corrective policies can either harm or heal market outcomes.
Block C1 ~ Externalities
When private costs don't equal social costs, markets produce too much or too little, creating inefficiency.
Episode C1
Externalities
Chapter 10: Externalities Reading
Skim the text to understand the main ideas
Homework C1: Due Date TBD Practice Assignment Solutions
Unlimited practice. Instant feedback. Submit to Gradescope.
Block C2 ~ Taxes
Taxes create deadweight loss by driving a wedge between what buyers pay and sellers receive, reducing total surplus.
Episode C2
Taxes and Welfare
Chapter 8: Taxes and markets Reading
Skim the text to understand the main ideas
Vignette C2 Vignette
Taxes practice problems
Homework C2: Friday October 18 Practice Assignment Solutions
Unlimited practice. Instant feedback. Submit to Gradescope.
Block C3 ~ Corrective Taxes
Pigouvian taxes can internalize externalities and restore market efficiency by aligning private and social costs.
Episode C3
Corrective Taxes
Chapter 10: Externalities Reading
Skim the text to understand the main ideas
Vignette C3
Corrective taxes practice problems
Homework C3: Due Date TBD Practice Assignment Solutions
Unlimited practice. Instant feedback. Submit to Gradescope.
Recitations
Come to Recitations prepared to work through extended Vignettes in both small groups and as a class. Your Recitation Instructor will guide you through a less structured economic problem, similar to what was covered in class and what you'll see on the next MiniExam. Submit your work to Gradescope at the end of Recitation.
MiniExam
MiniExam C will be held on Monday October 21st and covers everything in Part C. You will begin to learn that if you understand the concepts and do the work in the Vignettes, Homework, and Demo, you're going to be in good shape on the MiniExam.
