Unit 10 contains three main parts, on external effects (Sections 10.1 – 10.5), public goods (Sections 10.6 – 10.7) and asymmetric information (Sections 10.8 – 10.10) and finishes with the limits of markets (Section 10.11). Real-world examples are used extensively throughout to help students understand the concepts and see how they are used.
There are three major models in this unit:
The material uses some of the examples from The Economy 1.0 but has been reorganized and clarified. For example, the sections on public goods contain more detailed definitions and a new model of a broadcasting service to show how a public good can be provided when non-excludable and when excludable. The section on Coasean bargaining highlights the role of efficiency versus fairness, and illustrates impediments to private bargaining with a new example about DuPont.
This is the header we’ve chosen for Unit 10.
Private decisions can be as simple as deciding where to throw plastic. Not accounting for the negative external effects of such decision can produce environmentally negative outcomes, as the ocean polluted by plastic shows.