To understand how externalities can result in market failures, it is important that you know these
I Marginal Social Benet = Marginal Private Benet + Marginal External Benet
MSB = MPB + MEB
I Marginal Social Cost 2 Marginal Private Cost + M
Factor Market Pricing
A perfectly competitive labor market determines the equilibrium wage and employment in that
market. Firms that buy labor in this market will pay the market wage and can hire all the workers they
want at this wage. This activit
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Economic Eiciency and the Optimum Amount
of Pollution Cleanup
@ Student Alert: Does it make sound economic sense to clean up all pollution?
The human and environmental damage caused by industrial pollution often arouses
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Who Pays the Income Tax?
Who actually pays the income tax? Do the rich escape paying their fair share of taxes? Is most of
the income tax paid by middle-income people? Who are the rich? These questions are important for
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The Only Game in Town
In Activity 4-1, we assumed the Acme Yo-Yo Company sold its product in a perfectly competitive
market. Acme could sell all the yo-yos it wanted at the pri
What Is a Fair Tax?
Almost everyone is concerned about how much we pay in taxes. The best way to determine how much
tax you pay is to state your tax as an effective tax rate. An effective tax rate is the percentage of your
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Private or Public? The Goose Theorem
When an activity results in a negative externality (external cost), the market outcome will not be
efcient. In these cases, the government may choose to intervene in the market and impose som