How do you incorporate externalities and public goods into market equilibrium analysis and policy making?
Market equilibrium is a key concept in microeconomics, as it shows the point where supply and demand meet and determine the price and quantity of a good or service. However, market equilibrium does not always reflect the social optimum, or the best outcome for society as a whole. Sometimes, there are externalities and public goods that affect the welfare of consumers and producers, but are not accounted for by the market forces. In this article, you will learn how to incorporate externalities and public goods into market equilibrium analysis and policy making, and why they matter for economic efficiency and equity.