ON A GRAPH: 1) Show S and D for a product (let's use education) 2) Show MSB when there are NO spillover benefits (all who benefit must pay) Show the profit maximizing quantity Show the allocatively efficient quantity (assume S=MSC, i.e. no spillover costs) 3) Show what happens to D if there ARE spillover benefits (some people benefit without paying) 4) Show the market P, Q, and efficiency WITH spillover benefits: What happens to the profit maximizing P and Q when there are spillover benefits? (Show on graph)   What is the allocatively efficient quantity? (Show on graph) RESULT: 1) Does the market achieve allocative efficiency when there are spillover benefits?   2) Is there an OVERallocation of resources OR an UNDERallocation of resources?   3) Without the government would TOO MUCH or TOO LITTLE be produced?   ROLE OF GOVERNMENT: 1) When spillover benefits are associated with a product like education what should the government try to do to the QUANTITY -- INCREASE OR DECREASE it?   2) What are the three government policies to correct for markets with spillover benefits? a. b. c. 3) On your graph show the effect of an increase supply on the market for education.   4) What happens to quantity and allocative efficiency when the government subsidizes a product whose production has spillover benefits?