QUESTIONS:
1.Identify the impacted markets, where the externality arises and who is impacted by the externality. In the pollution examples the externality arises in the market for a good being produced, where a by product of that production is pollution. The impacted parties are those who also consume (a dirtier) environment. Include a supply and demand graph in your posting, i.e. displayed in your posting not only available with a link.
2.Discuss the difference between the best outcome for society and the best outcome for the involved individuals.
3.Create two reasonable polices that may be enacted to encourage the market to ‘not fail’. I.e. what structures or incentives/penalties might the government put in place to lead the market toward a socially optimal outcome. Show the impacts of each of the two policies graphically – best to use a changed version of your graph from the above question.
