## 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.

## Using Linear Demand Equations to Determine Quantity and Calculating the P-intercept

In the second lesson on linear demand equations we’ll learn how to use the equation to find the exact quantity demanded at any price. We’ll also learn what the “price-intercept” is, its significance and how it can easily be determined using the demand equation.

## Introduction to Dead Weight Loss (Welfare Loss)

As we’ve learned in earlier lessons, markets tend to achieve equilibrium prices and quantities that are efficient, as the marginal benefit of a product to its consumers equals the marginal cost to producers. But what makes outcomes other than equilibrium inefficient? This lesson looks at the impact of disequilibria on consumer and producer surplus, introducing the concept of “deadweight loss” or “welfare loss”, which will further help us understand what makes outcomes other than the equilibrium quantity and price inefficient.

## Changes in Demand versus Changes in Quantity Demanded

In our second lesson on Demand we’ll distinguish between a movement along a demand curve and a shift in the demand for a good. Be sure you’ve watched the lesson on the “Law of Demand” before beginning this lesson.

## Introduction to the Central Themes of Economics

In our final lesson of the introductory unit in the Economics course we’ll explore some of the central themes that will guide our inquiry of the subject going forward. From the tradeoff between equity and efficiency to the distinction between growth and development to the role of government in the economy, several themes will form the basis of all inquiry in our study of Economics.

## Scarcity, the Basic Economic Problem

What would you do if you showed up to class and there weren’t nearly enough chairs to go around? Well, you’re facing and economic problem that requires an economic system to solve! This lesson introduces the basic economic problem of scarcity and defines “Economics” and “Economic systems”, both key concepts for a student starting out on his or her journey to study the “dismal science”!

## Visualizing the Tragedy of the Commons

When a resource is abundant, it makes sense for it to be cheap. But as the scarcity of a resource (whether it’s renewable or non-renewable) is intensified under the pressure of growing demand and diminishing supply, a market failure arises if an efficient price is note established that assures the resources is consumed at a sustainable quantity. This lesson illustrates a simple supply and demand analysis of the Tragedy of the Commons.

## Asymmetric Information as a Market Failure

When the buyers or sellers in a market do not know all the same information, it is possible that the equilibrium quantity will be greater than what is best for society. The existence of such “information asymmetry” can lead to market failures, as will be explained in this lesson.

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## Public Goods as a Market Failure

A market failure exists when the private sector fails to produce the socially optimal level of output (where marginal social benefit equals marginal social cost). An extreme form of market failure arises in the case of public goods, which, due to their characteristics, are not provided by the free market at all.

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## Calculating the Effects of a Specific, Indirect Tax

This lesson will apply linear equations to calculate the exact impact of an excise tax on cigarettes, determining the new equilibrium price and quantity, and calculating the amount of tax paid by consumers and by producers.

## Indirect taxes’ (specific and ad valorem) Effects on Supply and the Supply Equation

An indirect tax may take one of two forms, a specific per unit tax or an ad valorem tax. This lesson explains (in two parts) the different impacts of these two types of tax on a good’s supply

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## Applications of Elasticity (PED, XED and YED)

Why does a knowledge of elasticity matter to businesses, the government and other stakeholders? This lesson explains the significance of price elasticity of demand, cross elasticity of demand and income elasticity of demand for producers and the government.

## Positive Externalities of Production as a Market Failure

Sometimes the production of a good creates external benefits for a third party, but not often! Businesses do not want to externalize benefits, because this means they aren’t making MONEY from their goods and services! However, sometimes positive production externalities arise. This lesson will explain these situations, give examples, and introduce some of the possible government solutions.

## Income Elasticity of Demand

Our final lesson on elasticities will examine the responsiveness of consumers of a good to a change in their own incomes. The lesson introduces the formula for YED, gives an example of how to calculate YED for both a normal good and an inferior good and explains the different possible values of the YED coefficient.

## Cross Price Elasticity of Demand (XED) and its Determinants

This lesson introduces the concept of cross price elasticity of demand, or the responsiveness of consumers of one good to a change in the price of a related good. We’ll outline the formula, walk through a couple of examples, interpret the results and discuss what factors determine the cross price elasticity of demand between two goods.

## Price Elasticity of Supply and its Determinants

This lesson introduces the concept of price elasticity of supply, including the formula, calculating PES, and an explanation of the determinants of PES. The responsiveness of producers of two goods, cotton and blue jeans, are illustrated as an example of how PES may vary for different goods.

## Linear Supply Equations – Shifts in Supply

In the last lesson you learned how to derive a supply equation from a supply schedule or curve. In this lesson you’ll learn how to find the price-intercept of supply and learn what could cause a change in the ‘c’ and the ‘d’ variables in the supply equation and what impact this will have on a good’s supply curve.