If the invisible hand/ price mechanism works to allocate resources so well, why do we see exorbitant pricing? Wastage? Shortages? Environmental degradation? Depletion of resources?

One way to explain this market failure is to understand that whenever people consume or produce, they could be creating Externalities. So what are Externalities? Where do they lurk? Why do they matter?

Lesson Objectives -

1. Explain what externalities are and how they occur.

2. Define key terms: externality/ external costs/ benefits, indirect tax/ Pigouvian tax

3. Reflect: What are the consequences of not paying the true price on goods and services we consume? (Personal Update 2 - 200 words, use terms and concepts learned)

4. Comment on 2 Peers' Reflections (75 words using terms and ideas learned)