Supplementary resources for high school students
Definitions and Basics
Consumer, The American Heritage Dictionary of the English Language, Anne H. Soukhanov, ed., from GoogleBooks.com.
- 1. One that consumes, especially one that acquires goods or services for direct use or ownership rather than for resale or use in production and manufacturing.
- 2. A heterotrophic organism that ingests other organisms or organic matter in a food chain.
Benefit-Cost Analysis, from the Concise Encyclopedia of Economics
Suppose, for example, we wished to evaluate the benefits and costs of a proposal to control air pollution emissions from a large factory. On the positive side, pollution abatement will mean reduced damage to exposed materials, diminished health risks to people living nearby, improved visibility, and even new jobs for those who manufacture pollution control equipment. On the negative side, the required investments in pollution control may cause the firm to raise the price of its products, close down several marginal operations at its plant and lay off workers, and put off other planned investments designed to modernize its production facilities.
How do we determine the willingness to pay for the favorable effects? First, it is relatively easy to value the reduced damage to materials. If, say, awnings will now last ten years rather than five years, it is straightforward to multiply the number of awnings times their price to get an idea of savings to consumers—so long as the price of awnings is not affected by the policy. If reduced pollution meant more agricultural output, it would be similarly easy to value because crops have well-defined market prices. In other words, when benefits involve marketed outputs, valuing them is not terribly difficult….
In the News and Examples
Advertising, from the Concise Encyclopedia of Economics
Economic analysis of advertising dates to the thirties and forties, when critics attacked it as a monopolistic and wasteful practice. Defenders soon emerged who argued that advertising promotes competition and lowers the cost of providing information to consumers and distributing goods. Today, most economists side with the defenders most of the time….
While persuasion and the creation of brand loyalty are often emphasized in discussions of advertising, economists tend to emphasize other, perhaps more important, functions. The rise of the self-service store, for example, was aided by consumer knowledge of branded goods. Before the advent of advertising, customers relied on knowledgeable shopkeepers in selecting products, which often were unbranded. Today, consumer familiarity with branded products is one factor that makes it possible for far fewer retail employees to serve the same number of customers.