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 Course notes quick navigation

1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix


These are costs or benefits associated with the production or consumption of goods and services that are passed onto third parties or spillover to affect others.  Externalities result in the production of social costs or social benefits' faced by society more generally and will result in either an over or under-allocation of resources to the production of certain goods and services.  In the absence of government intervention, the presence of externalities will result in a sub-optimal (or inefficient) allocation of the nation’s resources.

Externalities in production

Externalities in consumption

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Click here to watch clips on externalities from The Corporation series of videos, including some interesting case studies