unit 9: conflict of interest

Question 1

define social costs and benefits

Answer 1

social costs–include both private costs and external costs.
social benefits– include both social benefits and external benefits

Question 2

define private costs and benefits

Answer 2

private costs– costs paid by the firm producing the good or service
private benefits– benefits enjoyed by the people producing or consuming the good or service.

Question 3

explain externalities and external benefits

Answer 3

externalities – effects of an economic or business decision on the society

external benefits – benefits enjoyed by the people who are not the firm or individuals producing or consuming the good or service

Question 4

explain short and long runs

Answer 4

short run – period of time during which there is at least one factor of production
if at any point in time, there is at least one factor of production whose input cannot be increased, then the firm is operating in the short-term

long run – period of time during which there are no fixed factors of production both fixed and variable costs can be changed. means, in the long run, all factors are variable.

Question 5

explain exploitation and conservation

Answer 5

exploitation – the use of natural resources for the production of goods and services which sometimes comes with negative impacts

conservation – the presrvation and efficient use of resources. for natural resources to continue to be available and last longer, they need to be conserved and protected. when we practice conservation, we make sure the resources will be available for the future.

Question 6

define free trade and protectionism

Answer 6

free trade – when countries are trading freely with one another without imposing any restrictions.

prtectionsim – when countires take protective measures on improted goods.

Question 7

what are the arguments in favour of protectionsim? (reasons why countires may use protectionism)

Answer 7

reasons for countries using protectionism
- to safe guard employment in the economy:
- to prevent exploitation of labour in devloping countries: very often, when cheap goods are imported into a market, there are claims that the imported goods are cheap because the labourer in the exporting countries is paid very low wages
- to safeguard infant industries:
- to prevent dumping
- to correct balance of payment problems or deficit

Question 8

why might some be against protectionism? (reasons countries not use protectionism)

Answer 8

resons why countries may not use protectionism
- protectionism restricts other countries’ exports, so these countries may as well retaliate and restrict their own imports. leading to a general fall in world trade.
- protecting a home industry from foreign competition may cause it to be less efficient
- protectionism may reduce specialisation. if a country restricts imports, it may need to start producing goods that it may not be able to produce efficiently, using resources that could be put to better use elsewhere

Question 9

what are the arguments in favour of free trade? (the advantages)

Answer 9

• with free trade, each country will concentrate on the production of a product in which it has a comprative advantage. which will lead to an optimum and efficient use of resources
• consumers may obtain products at a cheaper price. leading to a rise in the standard of living.
• free trade increases competition, which enhances efficiency and lower prices for consumers
• consumers willl have a variety of products to choose from rather than just local products.

Question 10

explain why people may be against free trade

Answer 10

• could ruin domestic industries; imported goods may be available at a more competitive price which may wipe out local firms