D2.Eco.8.6-8: How External Benefits and Costs Influence Market Outcomes
In plain English: D2.Eco.8.6-8 is the C3 Framework economics indicator for grades 6-8 that asks students to explain how external benefits and costs influence market outcomes. Students learn that when a cost or benefit falls on people outside a sale, markets tend to make too much of some things and too little of others.
Explain how external benefits and costs influence market outcomes.
C3 Framework for Social Studies (NCSS) · Dimension 2: Applying Disciplinary Concepts and Tools · Discipline: Economics · Exchange and Markets · Official standard
D2.Eco.8.6-8 asks students to explain how external benefits and costs influence market outcomes. A market outcome is what a market ends up producing: how much of something is made and sold, and at what price. An external cost is a cost that falls on someone who is not the buyer or the seller, such as a town downstream from a factory that dumps waste. An external benefit is a benefit that goes to someone outside the sale, such as a farmer whose crops are pollinated by a neighbor's bees. Because buyers and sellers do not count these outside effects, markets tend to make too much of goods with external costs and too little of goods with external benefits.
Students read part of the federal Refuse Act of 1899, which made it a crime to dump refuse into navigable rivers (Source 1), and a U.S. Department of Agriculture page on the value of honey bee pollination (Source 2). They then analyze an invented scenario about a paper mill and an apple orchard on the same river (Source 3), and work with tables, diagrams and short simulations.
Learning Objectives
By the end of this lesson, students will be able to:
Define external cost, external benefit, third party and market outcome, and give an example of each
Calculate the full cost of a good as its private cost plus its external cost
Explain why external costs lead markets to make too much of a good and external benefits lead them to make too little
Describe how a law, a fee, a payment or a private deal can change a market outcome
Prior Knowledge Required
Students should already be comfortable with:
Explaining the roles of buyers and sellers in markets D2.Eco.3.6-8
Explaining how changes in supply and demand change prices and quantities D2.Eco.6.6-8
Citing specific evidence from primary sources RH.6-8.1
"Your neighbor buys a powerful new leaf blower and uses it every Saturday at 7 a.m. The store is happy and your neighbor is happy. Is everyone happy? Who else is part of this sale without being asked?"
Take answers. Students usually point out that the people next door lose sleep but had no say in the sale. Name the idea: the neighbors are a third party (someone outside a sale who is affected by it), and the lost sleep is an external cost. Then ask for the opposite: a purchase that helps people who did not pay for it (a neighbor's flower garden, holiday lights). Tell students that D2.Eco.8.6-8 asks them to explain how these outside costs and benefits change what markets produce.
Direct Instruction15-20 minutes
Key terms for D2.Eco.8.6-8 (working definitions)
Term
Meaning
Example
Market outcome
How much of a good is made and sold, and at what price
1,000 T-shirts a week sell for $6 each
Third party
A person or group outside a sale who is affected by it
Families living next to a busy airport
Private cost
The cost that the seller or buyer pays
The cloth, dye and wages for a shirt
External cost
A cost that falls on a third party
Dye in a stream that hurts a fish farm
External benefit
A benefit that goes to a third party
A homeowner's porch light that lights the sidewalk
Full cost
Private cost plus external cost
The cost of a shirt to everyone, not only the factory
Part 1: Why outside effects matter. In a market, sellers decide how much to make by comparing the price with their own costs, and buyers decide how much to buy by comparing the price with what the good is worth to them. Nobody in the sale has to count costs or benefits that land on someone else. So when a good has an external cost, its price is too low compared with its full cost, and people buy more of it than they would if everyone's costs were counted. When a good has an external benefit, the people who make or buy it get only part of its value, so less of it is produced than would be best for everyone.
Part 2: Ways to change the outcome. A law can ban or limit a harmful activity. A fee can make the seller pay for the external cost. A payment or grant can reward an activity with external benefits. Sometimes the people affected can make a private deal, such as a farmer paying a beekeeper to keep hives nearby. Work these examples with the class.
Spotting external costs and benefits
Decide which outside effect is a cost and which is a benefit, and name the third party: (a) a gas station on a corner stays open all night, and its bright sign shines into nearby bedrooms; (b) a family paints a mural on its garage wall facing the street, and people walking by enjoy it.
Result: (a) External cost: the families in the nearby homes lose sleep, but they are not part of any sale of gas. (b) External benefit: walkers enjoy the mural without paying for it. In both cases the buyer and seller (gas station and drivers; family and paint store) did not count the effect on others.
Finding the full cost (invented; Diagram 1)
A factory pays $6 to make each T-shirt (cloth, dye and wages). Leftover dye runs into a stream and costs a fish farm downstream $2 for every shirt made, to clean its ponds. What is the full cost of each shirt?
Result: Full cost = private cost + external cost = $6 + $2 = $8 a shirt. The factory sees only $6, so the fish farm pays $2 of every shirt's cost without being part of the sale.
How an external cost changes the market outcome (invented; Diagram 2)
Shirt buyers in a town take 1,000 shirts a week at a price of $6, 850 at $7 and 700 at $8. Sellers compete and charge their own cost, $6. How many shirts are bought, how many would be bought if the price included the $2 external cost, and how much damage does the fish farm suffer each week?
Result: At $6, buyers take 1,000 shirts. At the full cost of $8, they would take 700. The market makes 1,000 - 700 = 300 more shirts a week than it would if everyone's costs were counted. The fish farm's weekly damage is 1,000 x $2 = $2,000.
How an external benefit changes the market outcome (invented)
A shade tree costs a family $120 to buy and plant. It is worth $100 to the family (shade and a nicer yard) and $60 to the neighbors (cooler sidewalks and cleaner air). Will the family plant it on its own? What if the city offers a $30 tree grant?
Result: On its own, the family compares $100 with $120 and does not plant, even though the tree is worth $100 + $60 = $160 to everyone, more than its $120 cost. With the grant, the family pays $120 - $30 = $90, less than its $100 value, so it plants. Without help, the market produces too few trees.
Teacher tip. Students often call any bad result an "external cost." Keep asking two questions: "Who is the buyer and who is the seller?" and "Who else is affected, without being part of the sale?" A high price that a buyer pays is not an external cost; it is part of the sale.
Guided Practice15 minutes
A law about dumping in rivers. Context note: In 1899 Congress passed a law about rivers and harbors. Its section 13, often called the Refuse Act, was written mainly to keep rivers open for boats. Decades later, in the 1960s and early 1970s, federal officials and courts also used it against factories that polluted rivers, before the Clean Water Act of 1972 became the main federal water-pollution law. Read Source 1 aloud. Glossary: "refuse" (trash or waste, said REF-yoos), "discharge" (let out), "procure" (cause to happen), "wharf" (a dock), "manufacturing establishment" (factory), "navigable water" (a river or lake that boats can use), "tributary" (a stream that flows into a bigger river), "misdemeanor" (a less serious crime), "abet" (help someone do wrong).
1SEC. 13. That it shall not be lawful to throw, discharge, or deposit, or cause, suffer, or procure to be thrown, discharged, or deposited either from or out of any ship, barge, or other floating craft of any kind, or from the shore, wharf, manufacturing establishment, or mill of any kind, any refuse matter of any kind or description whatever other than that flowing from streets and sewers and passing therefrom in a liquid state, into any navigable water of the United States, or into any tributary of any navigable water from which the same shall float or be washed into such navigable water; [...]
[...]
2SEC. 16. That every person and every corporation that shall violate, or that shall knowingly aid, abet, authorize, or instigate a violation of the provisions of sections thirteen, fourteen, and fifteen of this Act shall be guilty of a misdemeanor, and on conviction thereof shall be punished by a fine not exceeding twenty-five hundred dollars nor less than five hundred dollars, or by imprisonment (in the case of a natural person) for not less than thirty days nor more than one year, or by both such fine and imprisonment, in the discretion of the court, one-half of said fine to be paid to the person or persons giving information which shall lead to conviction. [...]
Fifty-fifth Congress of the United States, Rivers and Harbors Act of 1899, sections 13 and 16 (Source 1: the Refuse Act) (1899). US government work (17 U.S.C. 105). Source text.
Translate the law. Prompt: rewrite the first 30 words of paragraph 1 in plain English. Teacher note: "It is against the law to throw, dump or let out, or to make someone else throw, dump or let out..." Stop before the list of places, which students use in the quiz.
Find the third parties. Prompt: before 1899, who was harmed when a mill threw its refuse into a river, even though they bought nothing from the mill? Teacher note: boat owners and shippers whose channels filled up, towns that used the water, people who fished. These are third parties, and their losses were external costs of whatever the mill made.
Think like a mill owner. Prompt: before the law, dumping was free for the mill. What did the law add to the mill's choice? Pairs discuss and write one sentence; the class shares a few.
The value of bees. Context note: Source 2 comes from the Agricultural Research Service, the U.S. Department of Agriculture's research agency. Many beekeepers sell honey, but their bees also pollinate crops (carry pollen from flower to flower so that fruit can form). Glossary: "managed honey bee colonies" (hives kept by beekeepers), "yields" (amount of crop harvested), "pathogens" (germs that cause disease), "sublethal" (not strong enough to kill), "prolific" (producing a lot).
1Honey bees are a critical link in U.S. agricultural production. Pollination by managed honey bee colonies adds at least $18 billion to the value of U.S. agriculture annually through increased yields and superior-quality harvests. But managed honey bees have come under serious pressures from many different stresses, which has resulted in beekeepers losing many colonies. Major factors threatening honey bee health can be divided into four general areas: parasites and pests, pathogens, poor nutrition, and sublethal exposure to pesticides. [...]
[...]
2About one mouthful in three in our diet directly or indirectly benefits from honey bee pollination. Commercial production of many high-value and specialty crops like almonds and other tree nuts, berries, fruits and vegetables depend on pollination by honey bees. These are the foods that give our diet diversity, color, and flavor. [...] There are native pollinators in the United States, but honey bees are more prolific and easier to manage, especially on a commercial level for pollination of a wide variety of crops. Almonds, for example, are almost completely dependent on honey bees for pollination. [...]
Agricultural Research Service, U.S. Department of Agriculture, ARS Honey Bee Health (Source 2: the value of bee pollination) (2025). US government work (17 U.S.C. 105). Source text.
Who pays, who gains? Prompt: a beekeeper sells honey to shoppers. Who else gains from the beekeeper's hives, and do they pay? Teacher note: nearby farmers whose crops get pollinated; often they do not pay, unless they rent the hives. Many almond growers in California rent hives from beekeepers each spring.
Pair check. Pairs write one sentence explaining why a beekeeper deciding how many hives to keep might not count the value to farmers. Quiz questions 1-8 use Sources 1 and 2.
Independent Practice15 minutes
One river, two stories. Source 3 is an invented scenario with invented numbers. Students read it on their own and complete the organizer: for the mill and for the bees, name the buyer, the seller, the third party, and whether the outside effect is a cost or a benefit.
1Invented scenario, written for this page. Two stories come from the banks of the fictional Cedar River.
2Upstream, the Riverbend Paper Mill makes 2,000 tons of paper a month. It costs the mill $520 to make each ton, and it sells each ton for $580. The mill's wastewater makes the river cloudy. Twelve miles downstream, the town of Clearwater must spend about $40 more to clean its drinking water for every ton of paper the mill makes, and a kayak rental shop says it has lost customers. Neither the town nor the kayak shop buys or sells paper.
3Near Clearwater, Ana Lopez grows apples on 40 acres. Her neighbor, Sam Reed, keeps 20 hives of honey bees and sells the honey at a farmers' market. Sam's bees fly into Ana's orchard and pollinate her apple blossoms. Ana estimates that the bees add about $6,000 a year to the value of her apple harvest, and Ana does not pay Sam anything. This year honey prices fell, and Sam says he may cut back to 10 hives.
SVHS (invented scenario written for this page), The Mill and the Orchard (Source 3: invented scenario). Original passage written for this page.
Invented data for Source 3. Then students answer: (1) Which story has an external cost, and which has an external benefit? (2) In each story, does the market make too much or too little of something? Of what? (3) Write one question you would ask the mill owner and one you would ask Sam. Quiz questions 9-18 use Source 3.
Closure10-15 minutes
Exit ticket: Complete both sentences: "When a good has an external cost, the market makes too ___ of it because ___." "When a good has an external benefit, the market makes too ___ of it because ___."
Teacher note on the sources: Source 1 is transcribed exactly from the Statutes at Large page images, with the omitted parts marked; the 1899 fines are in 1899 dollars. Source 2 is quoted exactly from the USDA Agricultural Research Service web page as last modified in June 2025; check the page for later changes. Source 3, the T-shirt factory, the shade tree and every number in the worked examples and activities are invented. The lesson explains how outside effects change market outcomes and does not take a position on any current environmental law or farm policy.
Differentiation Strategies
For Struggling Students
Use a four-box organizer for every case: buyer, seller, third party, cost or benefit
Act out the warm-up with three students (store, buyer, neighbor) so the third party is visible
Give the full-cost frame: "private cost ___ + external cost ___ = full cost ___"
For Advanced Students
Explain why the Refuse Act, written to protect boat traffic, could later be used against water pollution, and what that shows about laws and external costs
Use Diagram 2 to explain what would happen to the number of shirts bought if the external cost were $1 instead of $2
Research how farmers and beekeepers make pollination deals and explain how such a deal changes a market outcome without a law
Assessment Guidance
What to Look For
Strong answers name the buyer, the seller and the third party, identify the outside effect as a cost or a benefit, and explain the direction of the change: too much of goods with external costs, too little of goods with external benefits. Watch for students who call any unpleasant result an external cost, who forget to add the external cost to the private cost, or who think a law can only ban an activity, when fees, payments and private deals can also change the outcome.
02
Classroom Activities
3 Activities
1
Spillover Sort
10-15 minPairs
Pairs sort 8 cards into two piles, external cost or external benefit, and write the third party on each card. A spillover is an everyday word for an external cost or benefit: an effect that spills over onto people outside the activity.
The 8 Spillover Cards (invented)
A neighbor plays loud music at 2 a.m.
A family plants flowers that bees visit and people walking by enjoy.
The smell from a bakery makes the whole block smell good in the morning.
Smoke from a workshop chimney dirties laundry hanging in nearby yards.
A homeowner shovels snow from the sidewalk in front of the house.
During rush hour, each extra car on a road slows down all the other drivers.
A store pays for a bright light over its door that also lights the sidewalk.
A visitor leaves trash at a public park.
Answer Key for the Teacher
External costs: cards 1, 4, 6 and 8 (third parties: neighbors, nearby households, other drivers, other park visitors and the city that cleans up).
External benefits: cards 2, 3, 5 and 7 (third parties: walkers and nearby beekeepers, people on the block, people walking by, passers-by at night).
Discussion Questions
Choose one external cost card. Would the person do less of the activity if they had to pay the third party? Why?
Choose one external benefit card. What could the third parties do to get more of it?
2
River Mill Simulation
20 minGroups of 3 (mill owner, town, recorder)
Each group plays two rounds. The mill owner decides how many truckloads of paper to make, from 0 to 5. The profit on each load is listed below; each load also costs the downstream town $40 to clean its water. In Round 1 there is no rule. In Round 2 a new law makes the mill pay the town $40 for each load. The recorder fills in the round sheet.
Round Sheet (invented numbers)
Mill's profit on each load, before any payment to the town: load 1, $90; load 2, $70; load 3, $50; load 4, $30; load 5, $10.
Cost to the town for each load: $40.
Record for each round: loads made, the mill's total profit, the town's cost, any payment, and the total for the mill and the town together.
Answer Key for the Teacher
Round 1: a mill owner who cares only about profit makes all 5 loads (every load has a positive profit), earning $250. The town's cost is 5 x $40 = $200, so the mill and town together come out $250 - $200 = $50 ahead.
Round 2: paying $40 a load, the mill earns $50, $30, $10, -$10 and -$30 on loads 1-5, so it makes 3 loads. It earns $90 + $70 + $50 = $210, pays the town $120 and keeps $90. The town's cost of $120 is covered, so the mill and town together come out $210 - $120 = $90 ahead.
The rule changes the market outcome from 5 loads to 3, and the total for everyone rises from $50 to $90.
Discussion Questions
Why did the mill make loads 4 and 5 in Round 1 but not in Round 2?
Is it fair that the mill pays the town? Who else might deserve a payment?
3
The Bee Bargain
15 minPairs
Partners play a blueberry farmer and a beekeeper and try to make a deal. Each reads only their own role card, then they negotiate for five minutes and write down any deal they make. The class then compares deals.
The 2 Role Cards (invented)
Kim, blueberry farmer: "Diego's bees pollinate my bushes. My records show that each of his hives adds about $250 a year to my harvest. I pay him nothing now. I just heard he plans to get rid of 6 of his 12 hives."
Diego, beekeeper: "Honey prices are low. Each of my last 6 hives now costs me $80 a year more than its honey earns, so I plan to get rid of them unless something changes."
Answer Key for the Teacher
Keeping the 6 hives costs Diego 6 x $80 = $480 a year and is worth 6 x $250 = $1,500 a year to Kim.
Any yearly payment from Kim to Diego between $480 and $1,500 (between $80 and $250 a hive) leaves both better off than if the hives are removed.
Without a deal, the market outcome is 6 hives, fewer than is best for the two of them together, because Diego does not count Kim's external benefit.
Modification for English Learners
Give a deal frame: "Kim will pay Diego $___ a year for each hive, so Diego gains $___ and Kim gains $___."
03
Diagrams & Visual Aids
2 diagrams
Diagram 1: Private Cost and External Cost (Invented Example)
Bars drawn to scale for the invented T-shirt factory in Direct Instruction. The factory pays $6 to make each shirt. Leftover dye in the stream costs a fish farm downstream another $2 for each shirt, a cost the factory does not pay. The full cost of a shirt to everyone is $8.
Diagram 2: An External Cost Leads to Too Many Shirts (Invented Example)
Drawn to scale for the invented example in Direct Instruction. When shirts sell at the factory's own cost of $6, buyers take 1,000 a week. If the price included the $2 external cost, buyers would take 700. The market makes 300 more shirts a week than it would if everyone's costs were counted. The price axis starts at $4.
04
Homework Assignment
~30 min
D2.Eco.8.6-8 Homework: External Benefits and Costs
Directions: Part 1 uses new examples. Part 2 uses Sources 1-3 in the lesson plan. Show your math, and name the buyer, the seller and the third party whenever you explain an external cost or benefit.
Part 1: New Examples (Problems 1-3)
Invented example: soapy water from a car wash drains into a pond, where it harms the fish. A park study finds about $0.50 of damage for every car washed. The car wash cleans 1,200 cars a week and charges $12 a car. (a) What is the external cost each week? (b) Who is the third party? (c) Explain why the car wash has no reason on its own to wash fewer cars.
For each situation, write "external cost" or "external benefit" and name the third party: (a) a neighbor's dog barks for hours every night; (b) a student who learns first aid helps a stranger who falls; (c) a farmer's cattle trample a neighbor's fence; (d) a town's fireworks show can be seen free from nearby hills; (e) a truck with a broken muffler drives through a quiet street; (f) a beekeeper's bees pollinate a neighbor's pumpkins.
Invented example: a homeowner is thinking about repainting a run-down house. The job costs $3,200 and is worth $2,500 to the owner. It would also raise the value of each of the 4 neighbors' homes by $250. (a) Will the owner paint on their own? Why? (b) Is the paint job worth more than it costs to everyone together? (c) The city offers a grant. The owner will paint only if the grant makes the job cost the owner less than it is worth to them. The grant must be more than what amount?
Part 2: Using the Sources (Problems 4-6)
Source 1: suppose a mill in 1900 saved $1,800 a year by dumping its refuse into a river instead of hauling it away. Compare that savings with the lowest and the highest fine in section 16. Then explain how the reward to people "giving information" makes the law more likely to change what the mill does.
Source 3: suppose Ana finds that Sam's bees really add $7,200 a year to her harvest, and Sam says each of his last 10 hives costs him $90 a year more than its honey earns. (a) How much is each hive worth to Ana? (b) The total yearly payment for those 10 hives must be more than what amount and less than what amount for both Ana and Sam to be better off? (c) Explain how such a deal changes the market outcome.
Using Sources 1, 2 and 3, write two paragraphs explaining how external costs and external benefits influence market outcomes. Use one example of each, and describe one way to change each outcome: a law, a fee, a payment or a private deal.
Rubric
Criterion
Full Credit (2 pts)
Partial Credit (1 pt)
No Credit (0 pts)
Calculations
External cost, values and payment ranges correct in Problems 1, 3 and 5
One or two errors
Private and external costs mixed up
Identifying Spillovers
Correctly labels costs and benefits and names the third party in Problems 1, 2 and 6
Labels correct but third parties missing
Labels confused
Explaining Market Outcomes
Explains why markets make too much or too little, and how a law, fee, payment or deal changes it
Names the change without explaining why
No explanation
Use of Sources
Accurate use of Sources 1-3 in Problems 4-6
Sources used loosely
Sources not used
05
Quiz: 20 Questions
Interactive, with answers
Instructions
Questions 1-5 use Source 1 and questions 6-8 use Source 2, both in Guided Practice. Questions 9-18 use Source 3, the invented scenario in Independent Practice. Question 19 uses new examples, and question 20 uses Sources 1 and 2. Your score updates as you answer, and Reset quiz clears everything.
Multiple choice: pick an option to check it. Short answer: write your answer, then reveal the model answer.
0 of 20 answered · 0 correct
Question 1 of 20 · Multiple Choice
According to Source 1, paragraph 1, from which places did the law forbid throwing refuse into navigable water?
Answer: B
Section 13 covers refuse thrown "either from or out of any ship, barge, or other floating craft of any kind, or from the shore, wharf, manufacturing establishment, or mill of any kind." Choices A and C name only part of the list. Choice D is not in the section.
Question 2 of 20 · Multiple Choice
What kind of refuse did section 13 allow to keep flowing into rivers?
Answer: A
The ban covers all refuse "other than that flowing from streets and sewers and passing therefrom in a liquid state." Cities' sewage was left out of this law. Choices B and C are exactly the kinds of refuse the section bans. Choice D is not in the source.
Question 3 of 20 · Multiple Choice
According to Source 1, paragraph 2, who could receive half of a fine?
Answer: D
Section 16 says "one-half of said fine to be paid to the person or persons giving information which shall lead to conviction." Choices A, B and C are not in the section.
Question 4 of 20 · Multiple Choice
Under Source 1, a mill owner is convicted and fined the highest amount the law allows. How much of the fine goes to the person who reported the dumping?
Answer: D
The highest fine is "twenty-five hundred dollars," or $2,500, and half goes to the informer: $2,500 / 2 = $1,250. Choice A is the whole fine. Choice B is half of the lowest fine ($500 / 2). Choice C adds the lowest fine to half the highest ($500 + $1,250).
Question 5 of 20 · Multiple Choice
How did sections 13 and 16 change a mill owner's choice about dumping refuse?
Answer: A
Before the law, dumping was free for the mill, and the costs fell on boat owners and others downstream. A fine of up to $2,500, with a reward for anyone who reported it, gave the mill a cost of its own for dumping. Choice B is not in the source. Choice C describes a permit system, not these sections. Choice D goes beyond the law, which bans dumping, not mills.
Question 6 of 20 · Multiple Choice
According to Source 2, how much does pollination by managed honey bee colonies add to the value of U.S. agriculture each year?
Answer: B
The source says pollination by managed honey bee colonies "adds at least $18 billion to the value of U.S. agriculture annually." Choices A and C misplace the decimal point. Choice D contradicts the source.
Question 7 of 20 · Multiple Choice
Which crop does Source 2 say is almost completely dependent on honey bees for pollination?
Answer: C
The source says, "Almonds, for example, are almost completely dependent on honey bees for pollination." Choices A, B and D may use bees, but the source does not name them.
Question 8 of 20 · Multiple Choice
According to Source 2, why are honey bees used more than native pollinators for many crops?
Answer: C
The source says that although there are native pollinators, "honey bees are more prolific and easier to manage, especially on a commercial level." Choice A is not in the source. Choice B contradicts it. Choice D is not the reason the source gives.
Question 9 of 20 · Multiple Choice
In Source 3, who is a third party to the mill's sales of paper?
Answer: A
Clearwater must spend more to clean its water, but "Neither the town nor the kayak shop buys or sells paper," so they are outside the sale. Choices B and D are the buyer and the seller. Choice C is part of the mill's own costs.
Question 10 of 20 · Multiple Choice
Use Source 3. What is the full cost of one ton of the mill's paper?
Answer: D
Full cost = private cost + external cost = $520 + $40 = $560. Choice A is only the mill's own cost. Choice B is the selling price. Choice C adds the external cost to the price instead of to the cost.
Question 11 of 20 · Multiple Choice
Use Source 3. What is the total external cost of the mill's paper each month?
Answer: A
The mill makes 2,000 tons a month, and each ton costs Clearwater $40: 2,000 x $40 = $80,000. Choice B is the mill's own cost (2,000 x $520). Choice C is the mill's profit (2,000 x $60). Choice D is its sales (2,000 x $580).
Question 12 of 20 · Multiple Choice
Use Source 3. If a law made the mill pay Clearwater $40 for each ton, and the price stayed at $580, how much would the mill earn above all its costs on each ton?
Answer: D
Before the law the mill earns $580 - $520 = $60 a ton. Paying $40 a ton leaves $60 - $40 = $20. Choice A ignores the new payment. Choice B adds the payment instead of subtracting it. Choice C is the payment itself.
Question 13 of 20 · Multiple Choice
What is the most likely effect on the paper market if the mill must pay for the damage its wastewater causes?
Answer: B
Paying for the damage raises the mill's cost of each ton, so it has a reason to make less, to clean its wastewater, or to charge more. The market moves toward the amount it would make if the full cost were counted. Choice A is the opposite. Choice C is not supported. Choice D ignores that a higher cost changes the mill's choices.
Question 14 of 20 · Multiple Choice
Use Source 3. If each of Sam's 20 hives adds the same amount to Ana's harvest, how much is one hive worth to Ana each year?
Answer: C
$6,000 / 20 hives = $300 a hive. Choice A divides by 10, the number of hives Sam may keep. Choice B divides by 40, the number of acres. Choice D is the value of all 20 hives together.
Question 15 of 20 · Multiple Choice
Use Source 3. If Sam cuts back to 10 hives, about how much value would Ana's harvest lose each year?
Answer: B
Sam would remove 20 - 10 = 10 hives, and each is worth $6,000 / 20 to Ana, so she loses 10 x ($6,000 / 20) = $3,000. Choice A assumes she loses all the bees. Choice C is the value of 2 hives. Choice D is the value of 5 hives.
Question 16 of 20 · Multiple Choice
If Sam cuts back to 10 hives, which statement best explains the market outcome?
Answer: C
Sam decides by comparing his honey income with his costs. The value his bees add to Ana's apples is an external benefit he does not receive, so he leaves it out, and the market ends up with fewer hives than would be best for the two of them together. Choice A reverses the direction. Choice B is not supported. Choice D treats "nobody pays" as if it meant "no value."
Question 17 of 20 · Short Answer
Explain how the external cost in Source 3 influences the market outcome for the mill's paper. Use the words "full cost" and "too much" or "too little."
Model answer: The mill decides how much paper to make by comparing the $580 price with its own cost of $520 a ton, so it ignores the $40 a ton that Clearwater pays to clean its water. Because the price of paper does not include this cost, it is lower than the full cost to everyone, and buyers purchase more paper than they would if the full cost were counted. The market makes too much paper, and the town pays part of its cost. Rubric: 1 point for naming the external cost and who pays it; 1 point for using full cost correctly; 1 point for "too much" with a reason.
Question 18 of 20 · Short Answer
Suggest a deal that Ana and Sam could make so that Sam keeps all 20 hives. Explain why both could be better off, and how the deal changes the market outcome.
Model answer: Ana could pay Sam a yearly fee for each hive he keeps, for example $150 for each of the 10 hives he planned to remove. If those hives cost Sam less than $150 a year more than they earn from honey, he gains; Ana pays less than the value the bees add to her apples, so she gains too. The deal turns an external benefit into something Sam is paid for, so he counts it, and the market keeps more hives. Rubric: 1 point for a specific deal; 1 point for explaining why each side gains; 1 point for linking the deal to the external benefit.
Question 19 of 20 · Short Answer
For each situation, name the third party and say whether the effect is an external cost or an external benefit: (a) a city library stays open late, and nearby restaurants get more customers; (b) a company's delivery trucks idle for hours outside an apartment building; (c) a neighbor fixes a broken streetlight at his own expense.
Model answer: (a) External benefit to the nearby restaurants, which gain customers without paying the library. (b) External cost to the people in the apartment building, who breathe the exhaust and hear the noise without being part of the deliveries. (c) External benefit to everyone who walks or drives on the street at night. Rubric: 1 point for each correct label with its third party.
Question 20 of 20 · Short Answer
Use Sources 1 and 2 to explain how external costs and external benefits can push a market in opposite directions. Then explain one way to change each outcome.
Model answer: An external cost, like refuse dumped into a river in Source 1, makes an activity cheaper for the person doing it than for society, so the market produces too much of the good that creates the waste. An external benefit, like the pollination in Source 2 that adds billions of dollars to crops, means beekeepers are paid for their honey but often not for all the good their bees do, so the market may keep fewer hives than is best. A law with fines, like section 16 of Source 1, makes dumping costly and pushes the first market back; payments to beekeepers, such as fees for renting hives, push the second market toward more hives. Rubric: 1 point for each correct direction (too much, too little); 1 point for each fitting way to change the outcome, with evidence from the sources.
0 of 20 answered · 0 correct
06
Frequently Asked Questions
10 Questions
What does D2.Eco.8.6-8 mean?
D2.Eco.8.6-8 asks middle school students to explain how costs and benefits that fall on people outside a sale change what a market produces. The full text is "Explain how external benefits and costs influence market outcomes." It belongs to the Exchange and Markets part of the C3 Framework's economics indicators for grades 6-8.
What is an external cost, in simple words?
An external cost is a cost that lands on someone who is not the buyer or the seller. Noise from a neighbor's party, smoke from a chimney and waste dumped in a river are common examples. The people who make the decision do not pay this cost, so they tend to do more of the activity than they would if they had to pay it.
What is an external benefit?
An external benefit is a benefit that goes to someone outside a sale, who does not pay for it. A neighbor's flower garden that walkers enjoy, or bees that pollinate a nearby farm, are examples. Because the person paying for the activity does not get all of its value, markets tend to produce less of it than would be best for everyone.
What does "market outcome" mean in D2.Eco.8.6-8?
A market outcome is the result of buying and selling: how much of a good is made and sold, and at what price. External costs and benefits change the outcome because buyers and sellers leave them out of their decisions.
Are external costs and benefits the same as externalities?
Yes. Economists call them externalities, and everyday speech calls them spillovers. A negative externality is an external cost and a positive externality is an external benefit. The C3 indicator uses the plainer words "external benefits and costs."
Is the Refuse Act a real law?
Yes. It is section 13 of the Rivers and Harbors Act passed by Congress in 1899, and it is still part of federal law. The page quotes it from the Statutes at Large, the official printed collection of federal laws. It was written mainly to keep rivers open for boats and was later also used against water pollution.
How can a government change a market outcome caused by an external cost?
It can ban or limit the harmful activity, as the Refuse Act did, or charge a fee or tax so that the person causing the cost pays it. Either way, the activity becomes more costly for the person doing it, so they do less of it or find a cleaner way. Choosing among these tools is a question for later economics courses.
Can people fix an external benefit or cost without the government?
Sometimes. When only a few people are involved, they can make a deal, such as a farmer paying a beekeeper to keep hives nearby; many almond growers rent hives each spring. Deals are harder when many people are affected, such as everyone who breathes the air in a city.
How is D2.Eco.8.6-8 different from D2.Eco.8.9-12?
The grades 6-8 indicator asks students to explain how external benefits and costs influence market outcomes. The grades 9-12 indicator with the same number asks students to describe the intended and unintended consequences of government policies meant to improve market outcomes, which builds on this idea.
What is a quick check for D2.Eco.8.6-8?
Describe a short situation students have not seen and ask four questions: Who is the buyer? Who is the seller? Who is the third party? Will the market make too much or too little, and why? Students who answer all four with reasons understand the indicator.
07
Related Standards
5 standards
These standards connect to D2.Eco.8.6-8: prerequisites to review first, parallel standards at the same level, and next steps that build on it.
Before this lesson
D2.Eco.3.6-8Prerequisite
Explain the roles of buyers and sellers in product, labor and financial markets
Standard text: National Council for the Social Studies (NCSS), The College, Career, and Civic Life (C3) Framework for Social Studies State Standards: Guidance for Enhancing the Rigor of K-12 Civics, Economics, Geography, and History (Silver Spring, MD: NCSS, 2013). NCSS was not involved in the production of this lesson and does not endorse it.
