The financial services industry is one of the most crucial sectors in the United States economy. It encompasses a broad range of services that help individuals, businesses, and governments manage their financial resources, facilitate investments, mitigate risks, and access capital. From banking and insurance to investment management and financial advisory services, the financial services industry is integral to both the American economy and the global financial system. This article explores...

Key points If inventors received a greater share of the broader social benefits for their work, they would have a greater incentive to seek out new inventions. Positive externalities are beneficial spillovers to a third party or parties. Private benefits are the dollar value of all benefits of a new product or process invented by a company that can be captured by the investing company. Social benefits are the dollar value of all benefits of a new...

Key points Depending on their income levels and political preferences, different countries are likely to make different choices about how to balance economic output and environmental protection. All countries benefit from making a choice that is productively efficient—that is, a choice somewhere on the production possibility frontier rather than inside it. The tradeoff between economic output and environmental protection Unfortunately, it's not...

Key points Certain global environmental issues, such as global warming and biodiversity, spill over national borders and will need to be addressed with some form of international agreement. Biodiversity is the spectrum of animal and plant genetic material. International externalities are externalities that cross national borders and that cannot be resolved by a single nation acting alone. An international perspective on environmental issues...

Key points Taken as a whole, the benefits of US environmental regulation have outweighed the costs. As the extent of environmental regulation increases, additional expenditures on environmental protection will probably have increasing marginal costs and decreasing marginal benefits. This pattern suggests that the flexibility and cost savings of market-oriented environmental policies will become more important. Introduction Government economists...

Key points The three main categories of market-oriented environmental policies are pollution charges, marketable permits, and better-defined property rights. A marketable permit program is a program in which a city or state government issues permits allowing only a certain quantity of pollution. These permits to pollute can be sold or given to firms free. A pollution charge is a tax imposed on the quantity of pollution that a firm emits....

Key points The three main categories of market-oriented environmental policies are pollution charges, marketable permits, and better-defined property rights. The advantage of market-oriented environmental tools is that, because of their incentives and flexibility, they can achieve any desired reduction in pollution at a lower cost to society than command-and-control regulation. Market-oriented environmental tools Market-oriented environmental policies...

Key points Command-and-control regulation sets specific limits for pollution emissions and/or mandates that specific pollution-control technologies that must be used. Although such regulations have helped to protect the environment, they have three shortcomings: they provide no incentive for going beyond the limits they set; they offer limited flexibility on where and how to reduce pollution; and they often have politically-motivated loopholes....

Key Points Economic production can cause environmental damage. This tradeoff arises for all countries, whether high-income or low-income, and whether their economies are market-oriented or command-oriented. An externality, sometimes called a spillover, occurs when an exchange between a buyer and seller has an impact on a third party who is not part of the exchange. Externalities can be positive or negative. Market failure is when the market does not...

Key points As a perfectly competitive firm produces a greater quantity of output, its total revenue steadily increases at a constant rate determined by the given market price. Profits will be highest—or losses will be smallest—for a perfectly competitive firm at the quantity of output where total revenues exceed total costs by the greatest amount, or where total revenues fall short of total costs by the smallest amount. How perfectly...

Key points A perfectly competitive firm is a price taker, which means that it must accept the equilibrium price at which it sells goods. If a perfectly competitive firm attempts to charge even a tiny amount more than the market price, it will be unable to make any sales. Perfect competition occurs when there are many sellers, there is easy entry and exiting of firms, products are identical from one seller to another, and sellers are price takers....

Key points Privately owned firms are motivated to earn profits. Profit is the difference between revenues and costs. Private enterprise is the ownership of businesses by private individuals. Production is the process of combining inputs to produce outputs, ideally of a value greater than the value of the inputs. Revenue is income from selling a firm’s product; defined as price times quantity sold. Accounting profit is the total...