Economic Terms

The scope to benefit from specialisation and division of labour at management level increases as firms increase in size. There is also more scope to fund expert opinion from external consultants which provides advantages compared to the position when the firm was smaller.

Forcing people to make a conscious choice may lead to better outcomes as an end product. This is best illustrated by looking at the organ donation market in Sweden, in which saw individuals have to make a compulsory choice on whether to donate their organs or not. This imediately lead to an increase in the number of organ donations on the back of this compulsory choice.

 

A point where things can change from. In economics this normally means the difference between the current and next unit consumed or supplied.

The analysis of the effect of each successive unit of production or consumption of a good or service.

The cost of increasing production by one extra unit.

Below depicts an example of a firm's marginal costs associated with different levels of output produced. The marginal cost curve has a 'tick' shape because for small levels of output the marginal cost falls due to exploiting productivities and efficiencies. But as output becomes too large, production costs start to escalate and this explains why very sharply for high levels of output the marginal cost curve rises.

These are simply different labels for demand and supply curves. It is normal to use these labels for analysing externalities.

 

The additional benefit imposed on third parties by the consumption of an extra unit of a good or service. The benefit may be negative or positive.

Below is a diagram to highlight the external benefit that is present in a market with a positive consumption externality. This measures the size of the external benefit that will be realised from third-parties if the amount of goods consumed rises to the socially optimal amount i.e. it is the opposite of a dead weight loss triangle. In this instance the marginal external benefit exists because there is a divergence between the marginal private benefit and the marginal social benefit curves.

 

The additional cost imposed on third parties by producing an extra unit of a good or service. The cost may be negative or positive.

Below is a diagram to highlight the external cost that is present in a market with a negative production externality. This measures the size of the external cost that will be realised from third-parties if the amount of goods produced falls to the socially optimal amount In this instance the marginal external cost exists because there is a divergence between the marginal private cost and the marginal social cost curves. The reason this good is overproduced is because the individual producers do not realise this external cost they are releasing onto society.

The benefit a consumer enjoys by consuming an extra unit of a good or service.

The cost a supplier incurs by producing an extra unit of a good or service.