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This activity can be used in a principles of economics, or principles of microeconomics class. It is best that students understand the concept of externalities and how to analyse them with the use of graphs before they begin. Students should also be able to interpret PED and income elasticity of demand. Students should be familiar with the concept of tax incidence and how that depends on the price elasticity of demand (PED) of the good/service. Usually the topics of externalities, elasticities and tax incidence are not taught together so students may need to review those topics before attempting this application. Students should have done an iRAT/tRAT on the concept of externalities, and completed assigned problems on the various solutions and policies aimed to control externalities. This activity will take between 30 – 40 minutes depending upon the size of the class and how long it takes to report out.

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