1) Give an example that illustrates the difference between private costs and soc
ID: 1204323 • Letter: 1
Question
1) Give an example that illustrates the difference between private costs and social costs.
2) Name at least five government-provided goods that are excluded public goods.
3) Would voters have a greater incentive to vote in an election involving only a few registered voters or in one that has many? Why? Why might a Republican label her opponent too far left and a Democrat label his opponent too far right?
4) Many individuals learn more about the car they are thinking of buying than about the candidates running for president of the United States. Explain why.
Explanation / Answer
1) Social cost is a wider concept and private cost is a narrow concept. Private cost is a part of social cost.
Private cost is the cost incurred by the individual in production or consumption of a commodity.
Social cost is the cost that is incurred by the society as a whole in addition to private cost. It is private cost plus externalities.
Example:A produces of X commodity incurs the private cost in the production of X commodity in his factory that includes the cost of labour, cost of raw material, interest on capital, rent for factory premises, transportation cost, distribution cost. These are all the private costs.
In the process of production of X commodity, the factory emits lots of smoke into the air and the waste products are discarded in the near by river. The emission of smoke and waste from the factory produces the social cost in terms health hazards for people living in that vicinity. These costs in terms of medication for ill-health due to polluted air and water is the cost that is not incurred by the producer of X commodity but by the society. These are the negative externalities of production of X commodity. Thus the Social Cost is the private cost (cost of labour, cost of raw material, interest on capital, rent for factory premises, transportation cost, distribution cost) plus negative externalities (costs in terms of medication for ill-health)
2) The excludable goods are those, which can be prevented from use by people who have not paid for it. Government generally provides goods called public goods which are non-excludable i.e. you cannot prevent anyone from using them for example defense service, pollution control etc. But their are certain goods that are excluded public goods i.e. these goods are public goods but can not be accessed without payment. The five examples of government provided goods that are excluded public goods are: Libraries, Software, Museums, Medical Facilities and Education. Though the government provides these goods as public goods but the user of these goods and services need to pay some minimum fee to avail them.
3) The voter would have greater incentive to vote in an election involving only few registered voters because in that case his vote would have higher value. If the no of people voting is high, one vote of one voter would not make a significant effect on the results. If the registered voters were less, each vote would hold high weightage. Also, in case of less voters the incentive of voting for the party would be higher
Candidates (Republican and Democrat) label her opponent too far or too right because the closer the candidate is to the middle, higher would be the chances to win. The republican would argue that the Democrat is too liberal and the Democrat would label the Republican as too conservative. By putting this picture they are reducing the opponents chances to win. They would try to portray themselves as moderate i.e. not too conservative and not too liberal.
4) Many individuals learn more about the car they are thinking of buying than about the candidates running for president of the United States because the cost of becoming informed voter is too high than the benefits. There is very less personal benefit in knowing about the candidates along with negligible impact on overall political setting.
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