In this module we introduce the market imperfection of externalities in general and then focus on negative externalities such as pollution. We demonstrate that government intervention can be used to control the negative impacts and may in turn raise economic efficiency. We then consider the effects of over-taxation to highlight the importance of measuring costs and benefits accurately. Finally, we briefly look at the complex issue of global climate change from the perspective of the economic trade-offs and again highlight the importance of accurate measurement.

Overview of Externalities - 14 minutes

Negative Externalities (Pollution) - 34 minutes

The Over-taxation of Pollution - 7 minutes

The Case of Optimal Zero Pollution - 6 minutes

The Case of Global Climate Change - 22 minutes