But "anyone who tells you that markets left to their own devices will always lead to socially beneficial outcomes is talking utter nonsense. Markets alone fail to make us better off when there is a large gap between the private cost of some activity and the social cost. " These two costs are referred to as marginal private cost (MPC) and marginal social cost (MSC), and the difference between the two indicate an e x t e r n a l i t y .
An externality is the spillover cost or benefit of producing or consuming a good, on a party who did not choose to incur that cost or benefit. On an Econ graph, the externality is the difference between the MPC and the MSC curve. There are two types of externalities:
POSITIVE EXTERNALITIES An action of a product on consumers that imposes a positive effect on a third party. | NEGATIVE EXTERNALITIES An action of a product on consumers that imposes a negative effect on a third party. |
The "power of habit " I like to call it.
For instance, at school, we are suppose to be given the option to choose between the
IB DIPLOMA | AMERICAN PROGRAM | OPP | INNOVATION ACADEMY |
Is this fair to the people who can't afford to pay for a 20 dollar medicine that is actually worth only 5 dollars?
In order to avoid this from happening, the government could pay the company the value of the 20 year patent. Nonetheless, this is an "expensive solution that comes with problems of its own. Is arthritis serious enough to justify using public funds to make a new drug more affordable?" How is the government suppose to choose between which drugs to patent? That's basically like choosing who's health they rather help.
So if anything, I've realized that ECONOMICS IS COMPLICATED. Being part of the government is complicated. Analyzing human behavior is complicated, because everyone thinks and feels differently. Thus, there is no correct answer or "better" choice. At the end of the day, a governments true task shouldn't be to try and please everyone, because unfortunately-- being realistic--that's not going to happen. A governments true task should be to reach equity and not necessarily equality.