Chapter 6, Problem 1DQ

To determine

Whether it is possible for laws restricting dangerous or destructive activity to be too strict.

Explanation of Solution

It is not possible to enact laws that completely restrict dangerous or destructive activity as enacting these laws will involve restricting activities to such a degree that the economic costs associated with such laws will prove to be too high.

There is always a trade-off involved in taking any economic decision, and it arises due to the scarcity of resources. This scarcity results in an opportunity cost in any kind of economic decision. If dangerous or destructive activities are brought to to zero levels, then there would be a decline in the consumption of goods that may be associated with destructive consequences.

Thus, until the point where the marginal benefits of additional level of reduction in dangerous or destructive activities equals the marginal costs of reducing the additional level of dangerous or destructive activities, the efforts to reduce the same must be continued.

Economics Concept Introduction

Concept introduction:

Opportunity cost:

If one alternative is chosen over another alternative, then there is a cost involved in choosing the respective alternative i.e. the cost of the foregone alternative. This forgone cost is known as the opportunity cost.

Marginal social cost:

An increased cost to society by any activity of an individual or a firm is known as marginal social cost. It is calculated by adding the marginal external cost to the marginal private cost.

Marginal social benefit:

An increased benefit to the society by any activity of an individual or a firm is known as marginal social benefit. It is calculated by adding the marginal external benefit to the marginal private benefit.