Seeing the forest for the trees – An introduction to Macroeconomics

Most Economics courses begin with a semester or more of Microeconomics before moving into Macroeconomics. The transition between these two distinct areas of study is less smooth than that between units in other courses, as the tools, models and terminology employed in Macro will appear completely new to most students. I find it important, therefore, to prepare new Macroeconomics students for the months ahead by introducing them to some of the differences between Micro and Macro. A teacher of mine once explained the difference between Micro and Macro using the example of a tree and a forest. Microeconomics is the … Read more

Reflections on Educating Students for Happiness and Success in the 21st Century

Today we returned to work after a relaxing week of holiday-making for a day of “professional development”. The day kicked off with our school’s director sharing some information about a recent audit of our school’s parent community, which revealed that there is great anxiety among the parents at our school about their children’s experiences in school today, mostly relating to how well they will achieve on their examinations and whether their levels of achievement will assure them entrance to the top universities to which they (both the parents and the students) aspire. The ultimate source of this anxiety, it would … Read more

Negative Externalities of Production

In our last lesson we defined and introduced the different types of market failures we’ll study in future lessons. The first we examine is negative production externalities, which arise when the production of a good creates spillover costs on society as a whole.

This lesson looks at one market in which negative externalities result from production and carefully walks through how we can use marginal benefit and marginal cost analysis to illustrate and explain this market failure.

Introduction to Market Failures

Markets are thought to be the most efficient system for allocating society’s scarce resources. However, what if markets FAIL to achieve the efficiency we so desire as a society? Market failures arise when the free market quantity is either greater than or less than the “socially optimal” quantity of a good.

This lesson introduced different ways markets may fail to achieve a socially optimal level of output. In part 2 of this lesson we’ll explore in more detail one type of market failure: negative externalities of production.