Externalities:

$>$ Definition: externalities in production or consumption $/$ positive or negative externality.

$>$ Analysis: Identify the impact of an externality on the market equilibrium and resulting DWL$.$ Within an Edgeworth box, identify the impact of an externality where individuals jointly consume a good.

Public goods

$>$ Definition: what are key characteristics of a public good? Withinza supply$/$demand model for the public good,

how do these characteristics impact the identification of the aggregate demand schedule for a public good $($versus a private good$)?$

how do these characteristics impact the level of output of a public good that results in the market $($versus a private good$)?$ What is the role of free$-$riding behavior in explaining market outcome relative to efficient outcome?

Demonstrate the market failure associated a public good within a constrained optimization model. Compare the market outcome $($when agents individually maximize their own utility$)$ to the optimal outcome $($when a social planner maximizes joint utility of all agents in the economy$).$ Why does the market typically underprovide the public good?

$[$Coverage of this bullet point depends on our schedule during the last week of classes$]$ A world with uncertainty, we may have information $($known probabilities$)$ about different states of the world. Agents make decisions based on their expected payoff $($expected profit; expected utility$)$

$>$ Define the expected value of a lottery, the expected utility from a lottery, the certainty equivalent, and the risk premium.

$>$ If an agent is risk averse, is the utility from the expected value of a lottery greater than$/$less than the expected utility of a lottery? Implication for a market for insurance?

Asymmetric information

$>$ Define adverse selection and moral hazard.

$>$ What are the economic consequences of these two concepts on the market equilibrium? What Steos can be takenbto mitigate these cinsequences?