Real Cost Economics: What is Real Cost Economics
Real cost economics is an economic model that seeks to incorporate negative external costs into the prices of goods and services. Proponents of this type of economic system believe that products and activities that directly or indirectly have a detrimental effect on humans or the environment should be taxed to reflect hidden costs.
Understanding the economics of real spending
Real cost economics mainly applies to the production of goods and shows the difference between the market value of a commodity and the total social value of a commodity, such as how it can negatively affect the environment or public health (negatively external). This concept can also be applied to invisible benefits – known as positive externals – such as how pollination of plants by bees has an overall positive impact on the environment.
Real cost economics principle
The ideology behind real price economics is based on the belief that the social cost of creating a product or providing a service is not accurately reflected in its price. As an example of social spending, when the government provides health care to smokers, consider the additional burden on consumers and taxpayers – cigarette manufacturers do not pay at all. When the price of an item fails to reflect the total cost associated with its production, rendering, or result, under true economics, a third party (regulator or government) is required to influence consumer behavior and / or may be a constraint in the future. Take steps to impose rates or taxes to make tools available for treatment. In such movements, companies will ‘internalize’ negative externalities. This will definitely increase the market price. Negative externalities such as carbon dioxide emissions can also be taxed.
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