• Unit 2: Trade and Externalities

    Trade theory forms part of the bedrock of economic analysis. The concept of specialization is key to understanding how to maximize an individual's or country's wellbeing. Skills, resources, and knowledge are unequally distributed; it is the relative differences which drive trade.

    The free market is not always the optimal way to allocate scarce goods and resources. Actions and choices can have unintended effects which can harm or benefit others. How to best manage these effects, known as externalities, depends on the specifics of each problem. Economists have a variety of tools to redress misallocation.

    Public goods are a unique consideration, because they are a common resource which cannot be assessed an individual economic cost. Without proper management, public goods may be over-consumed and lead to degradation of resources. Geography plays an important part in public good analysis.

    Completing this unit should take you approximately 12 hours.

    • Upon successful completion of this unit, you will be able to:

      • analyze the role of markets in allocating scarce resources;
      • apply basic tools that are used in many fields of economics, including household economics, labor economics, production theory, international economics, natural resource economics, public finance, and capital markets; and
      • synthesize the impact of government intervention in the market.

    • 2.1: Trade

    • 2.2: Externalities

      • Externalities URL

        Read this chapter. Compare the role of individuals and society in maximization problems. When can a case be made to intervene in a market?

    • 2.3: Public Goods

      • Public Goods URL

        Read this chapter. Think about the nature of public goods and non-excludability. What is the role of geographic proximity to public good problems?

    • Unit 2 Assessment

      • Unit 2 Assessment Quiz

        Take this assessment to see how well you understood this unit.

        • This assessment does not count towards your grade. It is just for practice!
        • You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
        • You can take this assessment as many times as you want, whenever you want.