Today we will examine ways that government can intervene to remedy the misallocation of resources that market failure causes. You should read the text chapter identified below in the homework section, watch the related videos for help in understanding this material, do the activities identified, in the homework section and be prepared for the Problem of the Day. This page contains all the information you need for today's class. Use the table of contents on the right to help you navigate.
Read Mankiw (Chapter 10).
Watch this video.
Problem of the Day: You will work cooperatively with your partner to construct a response to the following prompt.
Greater consumption of alcohol leads to more motor vehicle accidents and, thus, imposes costs on people who do not drink and drive.
Illustrate the market for alcohol, identifying the market equilibrium level of output and the socially optimal (efficient) level of output.
On your graph, shade the area corresponding to the deadweight loss. Explain why this market is inefficient.
Lecture
Related Readings