A third party is an individual or entity involved in a transaction but not one of the main principle actors. In business, a third party could be an outside company who helps to complete a business transaction. For example, if a firm gets an order to produce manufactured goods, it may outsource part of the …
A Pigovian tax is a tax placed on any good which creates negative externalities. The aim of a Pigovian tax is to make the price of the good equal to the social marginal cost and create a more socially efficient allocation of resources. It is named after the economist Arthur Pigou who developed the concept …
A minimum price for alcohol means that alcoholic drink cannot be sold below a certain price. It is aimed at preventing the sale of very cheap alcohol by supermarkets. The hope is that a higher price will discourage binge drinking, improve health, and make people pay a price closer to the true social cost of …
Readers Question: I heard this over the radio one day and was dumbfounded. Can you please explain what the phrase means? Higher tax rates exact real economic costs: Maybe two dollars in deadweight loss to the economy for every extra one dollar collected. I am not asking what your beliefs are (liberal or conservative), I …
Definition – An external benefit occurs when producing or consuming a good causes a benefit to a third party. The existence of external benefits (positive externalities) means that social benefit will be greater than private benefit. Example of external benefit In this example, of cycling to work, there is Private benefit We save on a …
Readers Question: Could you please explain how positive externality (external benefit) lead to market failure in property industry? A positive externality occurs when a third party benefits from the production or consumption of a good. In many cases, building the right kind of housing can have benefits to the rest of society. Therefore, the social …
Readers question: Please tell me some products for which equilibrium price is not favourable for some producers and consumers which invite the state to impose price restriction. The equilibrium price is the price determined in a free market; the price determined by the interaction of supply and demand. Under what conditions could this market price …
Readers Question: Is it possible to construct the economic system so that does not rely on expanded growth which as we all know, is damaging the environment? causing pollution e.t.c. Could we have a society without economic growth? or as economists might prefer to answer – Can we have environmentally sustainable economic growth? To promote …