Newsletter: December, 2011

A price is an agreement between a buyer and a seller that balances costs and benefits. But most purchases affect other people, too. So prices aren’t perfect. Economists call these effects “externalities.” They are costs paid for by people who don’t benefit from the original transaction. Those people don’t get the money you spent or a taste of the candy you buy. For example, the candy cane factory might create pollution that affects people who live nearby. Candy creates cavities, but candy makers don’t have to pay for dental care.

Mobsters go green! Check out other clips from our show on the green economy here.

If Christmas trees are part of your family tradition, do you have a natural tree or an artificial one? Most people choose based on what they like best. If that evergreen aroma reminds you of the holidays, you’re likely to choose a natural tree. If you don’t like cleaning up needles or watering, you probably have a plastic tree.

Artificial trees are more expensive, but they are more convenient and can be reused. Natural trees are less expensive per tree, but you have to buy a new one every year. The price difference gives you useful information.But, your decision had a whoLook at the table to see a few examples.

We’re not trying to tell you what kind of tree to buy. The point is, if you base your choices on price alone, you’re ignoring your effects on others. By doing a little research, and by figuring out what’s important to you, you can make better decisions.

Many people choose not to think about it all and just do what they think benefits them the most. But during the holidays, it’s a good time to think about how our actions affect other people. Plus, you might be on the receiving end of an externality yourself!

By the way, here’s more on the debate about real vs. artificial trees.