One of the main issues in economics is the extent to which the government should intervene in the economy. Free market economists argue that government intervention should be strictly limited as government intervention tends to cause an inefficient allocation of resources. However, others argue there is a strong case for government intervention in different fields, …
Microeconomic topics Consumer and producer surplus Demand Substitute goods Complements Economies of scale Elasticity Price elasticity of demand Cross elasticity of demand Income elasticity of demand Price elasticity of supply Market equilibrium Production possibility frontiers Positive and normative statements Opportunity cost Specialisation and division of labour Market failure Positive externalities – the benefit to a …
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 efficiency. This is the optimal distribution of resources in society, taking into account all external costs and benefits as well as the internal costs and benefits. Social efficiency occurs at an output where Marginal Social Benefit (MSB) = Marginal Social Cost (MSC). Social efficiency is closely related to the concept of Pareto …
Negative externalities occur when the consumption or production of a good causes a harmful effect to a third party. Examples of negative externalities Loud music. If you play loud music at night, your neighbour may not be able to sleep. Pollution. If you produce chemicals and cause pollution as a side effect, then local fishermen …
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 …
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 …