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 …
A specific tax is a fixed amount of tax placed on a particular good. It is also referred to as a per-unit tax, and the tax will depend on the quantity sold (not price). Examples of specific taxes A tax of £0.40 on 500 ml sugary drinks. A tax of £3.92 per 20 pack of …
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 + …
Subsidies involve the government paying part of the cost to the firm; this reduces the price of the good and should encourage more consumption. A subsidy shifts the supply curve to the right and can be justified for goods which offer benefits to the rest of society. What is the justification for subsidising goods with …
Externalities occur when producing or consuming a good cause an impact on third parties not directly related to the transaction. Externalities can either be positive or negative. They can also occur from production or consumption. For example, just driving into a city centre, will cause external costs of more pollution and congestion to those living …
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 …
Taxation on goods, income or wealth influence economic behaviour and the distribution of resources. For example, higher taxes on carbon emissions will increase cost for producers, reduce demand and shift demand towards alternatives. Higher income tax can enable a redistribution of income within society, but may have an impact on reducing the incentives to work …
Tax incidence refers to how the burden of a tax is distributed between firms and consumers (or between employer and employee). The tax incidence depends upon the relative elasticity of demand and supply. The consumer burden of a tax increase reflects the amount by which the market price rises. The producer burden is the decline …