ECO100Y1 Lecture Notes - Lecture 14: Gross Domestic Product, Social Cost, Income Approach
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Non-excludable: people cannot be excluded from using the police officers. Non-rival: o(cid:374)e"s use of poli(cid:272)e offi(cid:272)ers does (cid:374)ot di(cid:373)i(cid:374)ishes other people"s use. If a town hires no police officers, the social cost of crime is ,000 per year. If the town hires four police officers (at a salary of ,000 per year for each officer), there will be no crime. Therefore, the town should hire four police officers. Suppose that, if town has one police officer, the social cost of crime drops to ,000. Alter distribution of income via taxes and transfer. Period of (generally) increasing income inequality, especially for those with high incomes. Tradeoffs: economic efficiency and redistribution: taxes (to raise revenue, to redistribute income) create deadweight losses (allocatively inefficient, programs to help equalize incomes may discourage work and reduce output. 2. 2 factor incomes approach: real versus nominal gdp, real gdp and economics well-being.
