Chapter 10: Externalities

Chapter 10 mostly focused solely on the idea of externalities and the effects they can cause in a competitive market. Externalities are the uncompensated impacts of a third-party of bystander when a trade happens in a specific good market. Externalities can also be either positive or negative; positive symbolizing a good outcome such as education. and a negative externality could be one such as pollution or a gas tax. When looking at the visual interpretation of externalities on a supply and demand graph, a positive externality causes a change above the demand curve and a externality causes a change to the supply curve to the left.
Since all externalities are considered market failures, the government usually tries to fix the failure, or mitigate it, by passing taxes or subsidies. By doing so, the government is internalizing the externalitiy. Internalizing the externality means making or forcing the company/supplier to see the problem and find a solution to better the situation. Forms by which the government can implement these courses of action would be by either command-and -control regulation or market-based policies. Market-based policies include corrective tax and trading permits. In addition to the government trying to fix the problem of externalities, private solutions can occur through charities, moral codes, and self-interest of the relevant parties. Another important theorem/idea to go along with this subject would be the Coase theorem, which means that private parties can bargain without a cost over the allocation of resources and they solve the problem themselves.
Overall I would give the chapter a rating of 2 since it was fairly easy to read and understand through the examples. Yet, the chapter was very long and confusing at certain parts.