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Social Studies skills: Difference between revisions
→Opportunity Cost
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*** even though the broken window provides benefit to a "glazier" makes money fixing it | *** even though the broken window provides benefit to a "glazier" makes money fixing it | ||
*** the shopkeeper suffers the "unseen" costs of not being to do something else with that money | *** the shopkeeper suffers the "unseen" costs of not being to do something else with that money | ||
*** additionally, the | *** additionally, the opportunities to fix broken windows may create an "unintended consequence" of a "perverse incentive" for glaziers to go about breaking windows in order to make money fixing them | ||
click EXPAND for a review of Bastiat's theory of "opportunity cost" and associated concepts of "unintended consequences" and "perverse incentives" | click EXPAND for a review of Bastiat's theory of "opportunity cost" and associated concepts of "unintended consequences" and "perverse incentives" | ||
<div class="mw-collapsible mw-collapsed"> | <div class="mw-collapsible mw-collapsed"> | ||
* ''Parable of the broken window'' | * ''Parable of the broken window'' | ||
** a shopkeeper has a careless son breaks a window | ** a shopkeeper has a careless son breaks a window | ||
*** his neighbors argue that broken windows keep "glaziers" (window-makers) in business | *** his neighbors argue that broken windows keep "glaziers" (window-makers) in business | ||
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**** or, perhaps, he has another need for 6 francs that he can not now fix | **** or, perhaps, he has another need for 6 francs that he can not now fix | ||
**** therefore the accident of the broken window prevents the shopkeeper from using his money more efficiently | **** therefore the accident of the broken window prevents the shopkeeper from using his money more efficiently | ||
** Bastiat writes, "Society loses the value of things which are uselessly destroyed" | |||
** the parable also develops "the law of unintended consequences" | |||
*** ex.: if the glaziers figure out they can pay a boy 1 franc to break windows, and they can still make a profit at 5 francs per window, | |||
**** there will thereby exist a "perverse" incentive to break windows | |||
***** "perverse incentive" = an incentive that produces a negative outcome | |||
** economists have argued over the "opportunity costs" of | ** economists have argued over the "opportunity costs" of damaging events: | ||
*** disasters (hurricanes, earthquakes which require repair and thus create jobs & economic activity) | *** disasters (hurricanes, earthquakes which require repair and thus create jobs & economic activity) | ||
*** wars (spur economic activity and mobilization) | *** wars (spur economic activity and mobilization) | ||
** however, whatever the benefit it does not account for Bastiat's "unseen" costs and cannot in any way outweigh the suffering, death and loss of choice created by the disaster or war | *** however, whatever the benefit it does not account for Bastiat's "unseen" costs and cannot in any way outweigh the suffering, death and loss of choice created by the disaster or war | ||
</div> | </div> | ||
* Examples: | * Examples: | ||