Definition of External costs An external cost occurs when producing or consuming a good or service imposes a cost (negative effect) upon a third party. If there are external costs in consuming a good (negative externalities), the social costs will be greater than the private cost. The existence of external costs can lead to market …
Profit is the net difference between revenue and costs. The main way that firms use profit is to: Pay dividends to shareholders. Invest in increasing capacity or expanding into new markets. Invest in research and development. Pay for new advertising and marketing strategies. Save profit as part of cash reserves, to use as savings. Tax. …
Definition Trade liberalisation involves removing barriers to trade between different countries and encouraging free trade. Trade liberalisation involves: Reducing tariffs Reducing/eliminating quotas Reducing non-tariff barriers. Non-tariff barriers are factors that make trade difficult and expensive. For example, having specific regulations on making goods can give an unfair advantage to domestic producers. Harmonising environmental and safety …
Capitalism is an economic system characterised by: Lack of government intervention Means of production owned by private firms. Goods and services distributed according to price mechanism (as opposed to government price controls) Capitalism – pros and consWatch this video on YouTube Pros of capitalism “A society that puts equality before freedom will get neither. A …
What are some of the biggest misconceptions about how the economy works? Some misconceptions Economists can make reliable forecasts. Presidents control the economy – Policies of government only partially responsible for economic activity. Luddite fallacy. – Misconception that new technology destroys jobs. Broken window fallacy – Misconception paying for damage creates economic activity. The lump …
Readers Question: What are the advantages of capitalism? Capitalism is an economy based on free markets where resources and firms are privately owned. In practice, this usually involves some state intervention to protect private property and regulate certain aspects of the economy. Most would argue that the UK and US is essentially capitalist despite the …
Social benefit is the total benefit to society from producing or consuming a good/service. Social benefit includes all the private benefits plus any external benefits of production/consumption. If a good has significant external benefits, then the social benefit will be greater than the private benefit. Examples of social benefit If we cycle to work, the …
Definition of social cost – Social cost is the total cost to society. It includes private costs plus any external costs. Example of driving to work Costs of paying for petrol (personal cost) Costs of increased congestion (external cost) Pollution and worse air quality (external cost) The social cost includes all the above. (Petrol + …