WATCH BOTH VIDEOS BELOW
This lesson covers Topics 6.1 and 6.3 in the AP Syllabus. Today we will begin our study of what happens when markets do not function efficiently (market failure). Our first topic is externalities.
Learning Target
Analyze the ways in which incentives influence what is produced and distributed in a market system.
Evaluate the extent to which competition among sellers and among buyers exists in specific markets.
Describe the consequences of competition in specific markets.
Criteria for Success
I will be able to use ideas related to market equilibrium and elasticities to analyze economic problems.
I will be able to demonstrate this understanding using a graph of the aforementioned model.
Assignments
Read: Krugman (Modules 74 and 75) and watch the following videos.
Watch: The video lecture for today's topic (linked above).
Optional: The videos linked below.
AC/DC Economics (Not required)
Khan Academy (Not required)
Formative Assessment (MCQ's): You will take a formal assessment during class. The assessment will consist of multiple-choice questions and one FRQ from an old AP Exam. Doing the problem of the day and ensuring that you understand it will help you prepare for today's formative assessment and help to ensure that you understand the concepts in this lesson.
Problem of the Day
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.
Suppose the government decides to issue tradable permits for a certain form of pollution.
Does it matter for economic efficiency whether the government distributes or auctions the permits?
If the government chooses to distrtibute the permits, does the allocation of permits among firms matter for efficiency?