Read the teacher guidance before using this resource. Divide the students into pairs or threes and give them the printable grid and cut-up images.
Then ask the students to decide in each case:
- where to place each good or service on the grid;
- what the external cost or benefit is;
- who is impacted by the external cost or benefit and why;
- why is each one a problem for a free market (over/under consumption is the basic idea).
Invite them to the whiteboard to use the interactive resource to show you how they placed the good or service on the grid.
- Smoking
- Power generation
- GSK
- Education
- Starbucks
- Industrial pollution
- Beer
- Health
External cost
External benefit
Consumption
Production
- Health: External benefit in consumption (reduced contagion, impact on businesses from healthier workforce).
- Education: External benefit in consumption (better skilled workforce, reduced training costs for firms).
- Facebook: External benefit in consumption (network effects – one extra user makes it more valuable to existing users. However, there are also negatives, obviously).
- Smoking: External cost in consumption (passive smoking, drain on NHS).
- Power generation: External cost in production (CO2 emissions causing flooding elsewhere in the world etc.).
- GSK: External benefit in production: (research and development makes profit for GSK but also benefits third parties as cures are found).
- Starbucks: This is highly arguable. External benefit in production (free Wi-Fi – we can 'free ride'). External cost in consumption (litter etc.).
- Beer: External cost in consumption: (Anti-social behaviour, drain on NHS).
- Industrial pollution into rivers: External cost in production.