How Do the Economics Concepts Impact the Economy? Essay Example

Chapter 5

  1. Externalities: This concept is important to me because I believe that companies do not always accurately measure the production costs which should also include externalities. As a result, the costs are unjustly borne by the society. This is important to me because it only promotes irresponsible behavior among corporations. Me and my generation have responsibility to build a better world for future generations and we should hold companies to higher standards of corporate responsibility.
  2. Positive Externalities: This concept is important to me because it is often ignored by the private sector and justifies government’s involvement in the economy to some extent. Some examples of positive externalities include education. I support universal healthcare system in the U.S. because it will result in positive externalities in the long term.
  3. Government Economic Functions: I often read in the news that government involvement in the economy leads to inefficiencies and this is why many oppose additional government regulation. I believe the market system is not absolutely efficient though it works pretty well and government should introduce legislation whenever necessary to regulate markets. The recent financial crisis has shown the importance of government intervention in rescuing the economy through actions such as regulations and bailout of troubled entities.
  4. Public Goods: Public goods are a great example of the benefits of government’s participation in the economy. I have chosen this concept because I believe private sector does poor job of providing public goods and basic healthcare services is also a public good in my opinion, thus, U.S. should pursue universal healthcare model. The sheer number of uninsured Americans proves that private sector does a relatively poor job of providing public goods.
  5. Subsidies: I have chosen this concept because I oppose subsidies in some forms since they introduce inefficiencies and reduce incentive for greater productivity. One example that comes to mind is the U.S. agricultural sector. I believe subsidies to agricultural sector should be eliminated because it may reduce food costs for an average American through cheaper products from other countries.

Chapter 6

  1. Taxation: This concept is important to me because I believe the U.S. can’t reduce national debt without both reducing spending and increasing tax revenue. I support proportional taxation because it is fair to everyone. In my opinion, the current tax system favors higher income groups disproportionately.
  2. Capital Gains: Currently, the U.S. tax system gives preferential treatment to capital gains as opposed to income. I believe capital gains should be taxed at the same rate as personal income. Personal income should actually be taxed lower because it comes from activities that make greater contributions to national productivity than capital gains.
  3. Double Taxation: I believe double taxation is unjust and dividends should not be taxed. Removing double taxation on dividends and other investment securities while taxing capital gains at the same rate as personal income may be more just tax policy. Removing double taxation may also encourage more companies to distribute dividends rather than retaining funds even when they have few reinvestment opportunities.
  4. Sales Tax: I have chosen this concept because I believe the current sales tax policy is not fair to some providers of products and services. Many internet-only companies do not have to charge their customers sales tax, especially when customers are located in state other than the home state of the company. This is unfair to brick-and-mortar companies and put them at competitive disadvantage.
  5. Taxes and Market Price: This concept has helped me understand why prices of some products and services change a lot due to rising taxes while others don’t. The answer is in the price elasticity of demand. Products whose demand is highly price elastic, tax burden is mostly shouldered by the sellers and vice versa.