AP/IB Economics
Mankiw Chapter 10: Externalities and Market Inefficiency
Guided Outline Textbook Pages 203-209
Main Ideas
“Market failure” does not
refer to the stock market or
to a recession. How does the
last sentence on 203 explain
market failure?
What are positive and
negative externalities? Why
is this a problem to society?
Give some examples of these
externalities. How might the
government do in each case to
correct the market failure?
Notes, definitions, examples, diagrams, formulas
Main Ideas
How do negative externalities
distort the market away from
its socially optimal
equilibrium?
Use a diagram in your
explanation.
What can be done to
“internalize the externality” in
this case?
How do positive externalities
distort the market away from
its socially optimal
equilibrium?
Use a diagram in your
explanation.
What can be done to “correct
the market failure” in this
case?
Notes, definitions, examples, diagrams, formulas
AP/IB Economics
Mankiw Chapter 10: Public Policies and Private Solutions
Guided Outline Textbook Pages 209-220
Main Ideas
How does a command-andcontrol regulation remedy
negative and positive
externalities?
What are some different
types of EPA regulation?
What are some problems with
creating these regulations?
What is the goal of marketbased policies with regards to
externalities?
What are three reasons most
economists prefer corrective
[Pigovian] taxes instead of
command-and-control policies?
Notes, definitions, examples, diagrams, formulas
Main Ideas
Explain the rationale behind a
high gasoline tax. Use a
diagram in your explanation.
How do tradable pollution
permits work?
Explain four ways people can
develop private solutions to
problems with externalities.
Why do private solutions
sometimes fail?
Notes, definitions, examples, diagrams, formulas
AP/IB Economics
Mankiw Chapter 11: Public Goods and Common Resources
Guided Outline Textbook Pages 225-238
Main Ideas
What does it mean for a good
to be “excludable”? Give an
example.
What does it mean for a good
to be “rival in consumption”?
Give an example.
Define a public good. Give
some examples of public
goods.
Explain why fireworks have a
“free rider” problem. How is
this problem typically solved?
Notes, definitions, examples, diagrams, formulas
Main Ideas
Explain the specific free rider
problem with national defense.
How is this problem solved?
Explain how a government
decides what public goods it
should provide. What are
some issues with this?
Define “common resources”.
Give an example of a common
resource and explain how it
fits the definition.
What is the lesson that
Mankiw wants us to learn from
his parable about common
resources?
Notes, definitions, examples, diagrams, formulas
AP/IB Economics
IB Syllabus: The Tragedy of the Commons as a Market Failure
http://www.youtube.com/watch?v=NZAwGoIAFgM
Main Ideas
What are the two
characteristics of natural
resources which eventually
lead to market failure?
Without management, what
does Garret Hardin say will
eventually happen to a pasture
land used for grazing?
What are the two options
Garret Hardin gives for
managing common access
resources like pastureland?
Describe the key
characteristics of common
access resources. Give some
examples.
What, exactly, is “the tragedy
of the commons”?
Notes, definitions, examples, diagrams, formulas
Main Ideas
Draw a graph AND EXPLAIN
the reason for the market
failure in the market for
seafood.
What is the ultimate result of
the negative externality in the
market for seafood?
What are some of the social
costs of depleting forests?
What are some of the social
costs of polluting the
atmosphere?
What are some specific
strategies being used now to
use common access resources
in a sustainable manner?
Notes, definitions, examples, diagrams, formulas
AP/IB Economics
Sustainable Development Video: Note-Taking Guide
http://www.youtube.com/watch?v=ByXM47Ri1Kc
Time Index
Key Question
Why is this topic important?
0:00 – 1:00
How does Ms. Ostrom describe the concept of sustainability?
1:00 – 1:50
Explain the problem between maximum sustainable yield and
private costs and benefits. Include a fully-labeled diagram.
1:50 – 3:00
Time Index
Key Question
What kinds of situations make management of common
resources difficult?
What kinds of mechanisms make management of common
resources possible?
3:00 – 6:15
What is critical about the rules and institutions that are
created to manage the common resource systems?
6:15 – 8:30
AP/IB Economics
Mankiw Chapter 12: The Design of the Tax System
Guided Outline Textbook Pages 241-249
Main Ideas
What are the two goals for
the design of any tax system?
Why do you think India and
China have such a low tax rate
compared to Sweden and
France?
From what different sources
does the U.S. government
collect its tax revenues?
What are the top two
sources?
How does the US government
spend its revenue? What are
the top two categories? What
does the chart on 245 imply
about the percent of revenues
the US spends on education?
Notes, definitions, examples, diagrams, formulas
Main Ideas
Explain what is meant by a
budget deficit and a budget
surplus.
From what different sources
do state and local
governments collect their tax
revenues? What are the top
two sources?
How do state and local
governments spend their
revenue? What are the top
two categories?
How does state/local spending
differ from the spending
priorities of the US federal
government?
Notes, definitions, examples, diagrams, formulas
AP/IB Economics
Mr. Steponic
Mankiw Chapter 12: The “Fairness” of Taxation
Guided Outline Textbook Pages 249-260
Main Ideas
What are the two goals for
the design of any tax system?
How do some taxes create
deadweight loss? Why is this
inefficient for society?
How does a tax on income
create a disincentive to save?
How might a tax on
consumption change this?
How do some taxes create an
administrative burden? Why
is this inefficient for society?
Notes, definitions, examples, diagrams, formulas
Main Ideas
Explain the difference
between average and marginal
tax rates. Which tax rate
measures equity? Which
measures efficiency?
Explain the two principles that
guide the equity of a tax
system.
Summarize the relationship
between equity and efficiency
as it relates to the tax
system.
Notes, definitions, examples, diagrams, formulas