In groups, discuss:
- What do you know about pricing?
- How do companies calculate the cost of a good?
- Why are similar goods sometimes priced differently?
- Why are goods different prices in different places?
- What is supply and demand?
- Give a concrete example
What is missing in the supply and demand equation?
Market failure is when pricing mechanism leads to an inefficient allocation of (scarce) resources and loss of economic welfare
Today, we will only consider 2 types of market failure: positive and negative externalities
Externalities are the consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices
- What is not included in the price of:
- Tree planting?
How can we adjust prices, now that we know their externalities?
Externalities do not have to be about pricing. Any activity that has an unintended impact on a third party can be seen as an externality.
In your groups, think of at least three positive and three negative externalities in the school.
Each of you will read one of the following articles and explain:
The market failure
one possible solution/outcome
Or spot all the externalities in Dr Seuss’ the Lorax