Externalities: As with the section on imperfect competition, this section returns to more formal graphical analysis for the first time in a number of chapters.  The basic story of an externality is easy to explain graphically.  The welfare analysis, however, is more complicated and so walking through Figure 16.2 carefully should be part of the lecture material for this chapter.  The discussion of policy responses to externalities is also important and an emphasis that these responses are constraints on firm action is useful.  There are also opportunities to tie current political discussions to the material by discussing the role of carbon taxes and cap-and-trade programs as potential solutions to the externality problem.