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    2.3 Social Costs and Benefits: Igcse /O Level Economics

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    2.3 Social Costs and Benefits: Igcse /O Level Economics

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    zain
    385 views10 pages

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    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    385 views10 pages

    2.3 Social Costs and Benefits: Igcse /O Level Economics

    Uploaded by

    zain

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 10

    S4

    IGCSE®/O Level Economics

    2.3 Social costs and benefits

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Private costs and benefits

    Private sector firms Aim to maximize their profits

    Private costs = wages, rents, components,


    insurance premiums, telephone bills, electricity,
    etc.
    Private benefits = revenue from the sale of
    products to consumers

    Consumers Aim to maximize their utility (or satisfaction)

    Private costs = payments for goods


    and services
    Private benefits = satisfaction from consuming
    the products they buy

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Market failure

    Some producers and consumers may ignore the harmful


    effects of their production and consumption decisions and
    activities on other consumers, firms and the environment

    because they are only concerned with their own private costs
    and benefits

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    External costs

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Social costs

    Total social cost = private costs + external costs

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    External benefits

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Social benefits

    Total social benefit = private benefits + external benefits

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    An economic use of
    resources?
    If total social benefit > total social cost

    Economic welfare can be improved by encouraging


    more production and consumption

    If total social cost > total social benefit

    Economic welfare can be improved by reducing


    production and consumption

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Correcting market failure

    How can a government in a mixed economy ensure that firms and consumers take
    account of the external costs and benefits of their decisions and actions?

    India to enforce new regulations to Government unveils plan to tax the carbon
    curb noise pollution emissions of the worst polluters

    The Australian government has banned live


    cattle exports to Indonesia until safeguards are Tax on landfill to increase by 20% as the
    adopted to end the brutal slaughter of animals government attempts to reduce the amount of
    waste that ends up in the ground.
    The Chinese government announces
    South Africa bans plastic bags to
    18 recycling projects are to receive reduce litter
    government subsidies covering up to
    50% of total investment costs Retailers caught handing out the bags now
    face a fine of 100,000 rand ($13,800) or a 10-
    year jail sentence

    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute
    Correcting market failures

    To reduce external costs To increase external benefits


    • Raise taxes on firms with activities that • Ensure public sector provision of socially
    create external costs to reduce those and economically desirable goods and
    firms’ after-tax profits, e.g. taxes on services, e.g. providing free vaccinations and
    emissions from the use of fossil fuels, on education, public parks, public transport and
    landfill waste and mineral extraction roads

    • Increase indirect taxes on products that • Provide subsidies to private sector firms
    are considered harmful to raise their to reduce the cost of activities and
    prices and discourage their consumption, products that have external benefits, e.g.
    e.g. taxes on cigarettes, petrol, plastic bags subsidies for recycling, renewable energy,
    organic farming
    • Use regulations and fines to discourage
    the production or consumption of • Use regulations to encourage firms to
    products or activities that are harmful, change their production methods, e.g.
    e.g. smoking bans, planning controls, legal rules to phase out traditional light bulbs to
    limits on air and water pollutants, anti-litter laws encourage a switch to low-energy light bulbs,
    health and safety regulations, animal welfare
    laws
    © Brian Titley 2012: this may be reproduced for class use solely for the purchaser’s institute

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