2. Marginal cost
2.1. Read the text.
Deadweight loss is something that occurs in the economy when total society welfare is not maximized. Under certain conditions, the welfare of a society (meaning consumer and producer surplus) will be at its maximum, meaning that the economy as a whole cannot be better off. Keep in mind that a society achieving its maximum welfare doesn’t necessarily mean that the welfare is distributed equally or fairly, it simply means that TOTAL (consumer plus producer) welfare is at its highest possible amount.
Marginal cost is based on the economic theory that the more goods are produced, the lower will be the per-unit cost.
The additional cost of producing one more goods, or providing services to one more customer.
The Sometimes called incremental cost, marginal cost shows how much costs increase from making or serving one more unit, an essential factor when contemplating a production increase, or seeking to serve more customers. If the price charged is greater than the marginal cost, then the revenue gain will be greater than the added cost. That, in turn, will increase profit, so the expansion in production or service makes economic sense and should proceed. Of course, the reverse is also true: If the price charged is less than the marginal cost, expansion should not go ahead.
Marginal cost = Change in cost ÷ Change in quantity
If it costs a company $260,000 to produce 3,000 items, and $325,000 to produce 3,800 items, the change in cost would be:
325,000 − 260,000 = $65,000
The change in quantity would be: 3,800 − 3,000 = 800 When the formula to calculate marginal cost is applied, the result is: 65,000 ÷ 800 = $81.25
If the price of the item in question were, say, $99.95, expansion should proceed.
2.2. Translate the sentences, paying attention to the synonymic couples.
1. This indicates that the present model is relevant and suitable for predicting the risks.
2. Installation of the precision automatic sensors must be performed neatly and carefully to assure dependable and reliable operation throughout its service life.
3. This technology line was selected as being rather straightforward and simple to apply.
4. It is realized that older computers still exist which precision and accuracy are not that good.
2.3. Translate the text.
Если DWL снизит цену до 5,00 долл., то его прибыль, или выигрыш производителя, трансформируется в выигрыш потребителей для тех 2 млн. единиц, которые были бы востребованы даже при цене 9,70 долл. В этом — сущность перераспределения дохода. Кроме того, возникает спрос еще на 2 млн. единиц, — спрос, который фактически весь (при данном угле наклона функции спроса) оказывается спросом по отправным ценам (reservation price), превышающим 5,00 долл. Удовлетворение этого спроса увеличит выигрыш.
3. An Externality
3.1. Read the text.
An externality refers to the uncompensated impact of one person’s actions on the well-being of a bystander. Externalities cause markets to be inefficient, and thus fail to maximize total surplus. It arises... . . . when a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives any compensation for that effect.
When the impact on the bystander is adverse, the externality is called a negative externality. When the impact on the bystander is beneficial, the externality is called a positive externality.
Negative Externalities Automobile exhaust Cigarette smoking Barking dogs (loud pets) Loud stereos in an apartment building. Classic example of a negative externality: pollution, generated by some productive enterprise, and affecting others who had no choice and were probably not taken into account.
When a negative externality exists in an unregulated market, producers have lower marginal costs MC than they would otherwise have and the supply curve is effectively shifted down (to the right) of the supply curve that society faces, more of the product is bought than the efficient amount, that is, too much of the product is produced and sold. Since marginal benefit MB is not equal to marginal cost, a deadweight welfare loss results. Negative externalities result in market inefficiencies unless proper action is taken.
This graph shows the effect of a negative externality. The red line represents society's supply curve/marginal cost curve while the black line represents the marginal cost curve that the firm or industry with the negative externality faces. The optimal production quantity is Q', but the negative externality results in production of Q*. The deadweight welfare loss DWL is shown in gray.
A positive externality exists when a firm does not receive the full benefit of their decision, the latter being is less than the benefit to society. Thus when a positive externality exists in an unregulated market, the marginal benefit curve (the demand curve) of the individual making the decision is less than the marginal benefit curve to society. With positive externalities, less is produced and consumed than the socially optimal level.
When a positive externality exists in an unregulated market, consumers pay a lower price and consume less quantity than the socially efficient outcome. This can be seen on the graph. Consumers pay price P' and consume quantity Q', but at that quantity society would have them pay more. At P' Q' the marginal benefit to society is much higher than marginal cost, resulting in a deadweight welfare loss. The socially efficient outcome is to pay price P* and consume quantity Q*. At this price and quantity the marginal benefit to society is equal to the marginal cost.
There are many Common examples of a positive externality. Immunization prevents an individual from getting a disease, but has the positive effect of the individual not being able to spread the disease to others. Keeping your yard well maintained helps your house's value and also helps the value of your neighbors' homes. Beekeepers can collect honey from their hives, but the bees will also pollinate surrounding fields and thus aid farmers.