Economies of scale

1. Economies of scale • You have 7 minutes to come up with a role play where you pretend you are employees in a firm and you plan a scene which illustrates a particular economy or diseconomy of scale. • The class have to guess which EofSit is .

2. Externalities • What is each picture showing? • What is the impact on society of each of the following?

4. Key Concepts Negative externality Positive externality External cost External benefit Externalities Aims - To identify and explain externalities - To have at least five examples of positive and negative externalities

5. Definition • Externalities: costs or benefits of a transaction that inflict a third party, who are not compensated. • Externalities of consumption: When consuming a good/service impacts on others (ie smoking) • Externalities of production: When producing a good/service impacts on others (ie construction -noise-)

6. Question • Think of 3 more externalities of: • 1) Consumption • 2) Production

7. You must know… • Positive externalities are beneficial to the third party • eg. education, vaccination, restoration of historic buildings, flood protection, +benefits of immigration • Negative externalities: are costly to the third party • eg. loud music, traffic, pollution, overcrowding, resource depletion.

8. The Theory • Social costs = private costs + external costs • Social benefits = private benefit + external benefit

9. Private • Private benefits: benefits that only the firm or consumer receives, not the third party • eg. Satisfaction of listening to music, • Private costs: costs that inflict the firm or consumer only and not the third party • eg. purchases of raw material, lung cancer, cost of cigarettes

10. External (the externality bit) • External costs: costs of consumption/production that inflict the third party • eg. noise pollution, air pollution, traffic congestion • External benefits: benefits of consumption/production that inflict the third party • eg. vaccination

11. Private benefits Private Costs 1. Smoking- ‘High’ from the drug • Smoking- Cough, stained fingers, • stained teeth, smelly clothes and breath External benefits External Costs • Smoking- Having to breath the smoke • which can be harmful to people’s health • 2. Cigarette butts lying on the ground • 3. Discolouring of walls Think of 4 products and make a table like this one showing the benefits and costs.

12. Should the government intervene? • Without government intervention producers and consumers will produce a high level of negative externalities... • And producers and consumers will have little incentive to make decisions that create positive externalities.

13. What policies could the government implement to… • 1) Stop individuals from dropping litter • 2) Encourage house owners to improve their local area • 3) Encourage people to take vaccinations to stop the spread of disease • 4) Stop people from smoking • 5) Encourage people not to drink alcohol to excess • 6) Stop firms from polluting rivers and emmiting high levels of carbon emissions • 7) Encourage people to take public transport instead of using cars

14. Combating negative externalities • Think about the different advertising campaigns you have seen. • Which ones can you remember and why?

15. Combating Negative Externalities

16. Your task • Research and find out about a negative externality that exists today. • Make an advert which explains the extent of the problem and the way it affects third parties. • Encourages people to be more responsible • Offers a variety of solutions to the problems.

17. When watching DVD (22 minutes),what has caused the externality?What problems does this cause?Be ready for discussion afterwards.