Business economic Coursework Example | Topics and Well Written Essays - 500 words

Business economic - Coursework Example 6). Inflation causes a redistribution of income and wealth away from lenders to the benefits of borrowers. Inflation reduces the value of money so lender losses some value of his money once he is paid in the period of inflation. Keynesian economic theory usual relay on spending aggregate demand to define the economic market place of which is often influenced by public and private decisions. Classical economic theory is rooted in the concept of a laissez-faire also known free market, which requires little to know government interventions. Also allows individuals to act according to their self-interest regarding economic issues thus promoting unemployment 8). An externality exists in production of good or service when: the marginal social cost differs from the marginal private cost of production. For example, a chemical industry emits wastage as a by-product into nearby rivers and into the atmosphere. This creates negative externalities, which impose higher social costs on other firms and consumers. 9). In a market economy, the ideal solution to the problem of externalities would be to allow producers to produce the output level where both the marginal private benefits and the marginal. Externalities create divergence between the private and social cost of