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CHAPTER 28 (Externalities Scenario: Toy factory (External cost (the…
CHAPTER 28
Externalities
Scenario: Toy factory
External cost
the economic concept of not paying money for social or environmental effects that the business make
Example: Air comes from the factory may cause pollution
External benefit
benefit gained by an individual or firm as a result of an economic transaction but where they are not directly involved in the transaction
example: Reduce unemployment
private cost
A producer's or supplier's cost of providing goods or services
Example: the cost of labor engaged in direct production, packaging cost, advertising cost
Social cost
total cost paid for by the society due to the activities of a firm. It is the sum of all the external cost and private cost.
Example: Less land and trees may be cut
Social benefit
total benefit arising due to the production of goods and services by a firm. This is equal to the total of private benefits and external benefits
Example: Paying tax for government can help society becomes better
Private benefit
benefits received directly by the consumers or the producers of a product
Example: Money made from sales of toys
Main influences for Business to respond to environmental pressure and opportunities
If a business is reported to as destroying an important natural site or dumping wastes into the sea, then many customers will stop buying its products. Businesses don’t want to lose sales, so if sales of a product falls due to customers thinking it harms the environment, the business may have to quickly change its products or production methods
Pressure group
an take very effective actions against businesses that are not socially responsible. Some such as Greenpeace and Earth First! Have tried to block up businesses’ waste pipes or organize Consumer boycotts
Government through legal controls
They can make businesses’ activities illegal. For example: Locating in environmental sensitive area such as national parks, dumping waste products into seas or rivers, making products that cannot be easily recycled.
Environmental friendly business example
IKEA
In its latest commitment to the environment, furniture retailer IKEA has planned to use only renewable and recycled materials in its products by 2030. ... An Inter IKEA spokeswoman said, “Currently, 60 per cent of the IKEA range is based on renewable materials, while nearly 10 per cent contain recycled materials."
Sustainable development
about people - better lives now and a healthy planet for future generations
Examples
Adidas
provide the best lifestyle for its employees by including creative scheduling and time off models
BMW
reduce the emissions of the vehicles it produces and offer electric and hybrid choices for its customers
Apple
have committed 100 percent of their power from renewables