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    An Increase in The Cost of A Particular Type of Accident

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    Lucky Lucky
    An increase in the cost of a particular type of accident will decrease the efficient level of precaution. This is because as the cost of an accident increases, the marginal cost of precautions becomes less than the marginal benefit. To address this, the level of precaution should be increased until the marginal costs equal the marginal benefits again. An external change that reduces the marginal probability of an accident will cause the efficient precaution level to increase. This is because an external change lowers the marginal benefits of precaution below the marginal costs. To address this, the level of precaution should be decreased until the marginal benefits again equal the marginal costs.

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    An Increase in The Cost of A Particular Type of Accident

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    Lucky Lucky
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    An increase in the cost of a particular type of accident will decrease the efficient level of precaution. This is because as the cost of an accident increases, the marginal cost of precautions becomes less than the marginal benefit. To address this, the level of precaution should be increased until the marginal costs equal the marginal benefits again. An external change that reduces the marginal probability of an accident will cause the efficient precaution level to increase. This is because an external change lowers the marginal benefits of precaution below the marginal costs. To address this, the level of precaution should be decreased until the marginal benefits again equal the marginal costs.

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    An increase in the cost of a particular type of accident will decrease the efficient level of precaution. This is because as the cost of an accident increases, the marginal cost of precautions becomes less than the marginal benefit. To address this, the level of precaution should be increased until the marginal costs equal the marginal benefits again. An external change that reduces the marginal probability of an accident will cause the efficient precaution level to increase. This is because an external change lowers the marginal benefits of precaution below the marginal costs. To address this, the level of precaution should be decreased until the marginal benefits again equal the marginal costs.

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    17 views2 pages

    An Increase in The Cost of A Particular Type of Accident

    Uploaded by

    Lucky Lucky
    An increase in the cost of a particular type of accident will decrease the efficient level of precaution. This is because as the cost of an accident increases, the marginal cost of precautions becomes less than the marginal benefit. To address this, the level of precaution should be increased until the marginal costs equal the marginal benefits again. An external change that reduces the marginal probability of an accident will cause the efficient precaution level to increase. This is because an external change lowers the marginal benefits of precaution below the marginal costs. To address this, the level of precaution should be decreased until the marginal benefits again equal the marginal costs.

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    10. An increase in the cost of a particular type of accident.

    When the cost of a particular type of accident increases, it will cause a decrease in the

    efficient level of precaution. This happens mainly because as the cost of a particular type of

    accident increases, the marginal cost of precautions becomes lesser than the marginal cost of

    benefit. Or, at each level of precaution, marginal benefits become higher as a result of the

    increase in the cost of a particular type of accident.

    In order to deal with such situations, keep on increasing the level of precaution till the

    marginal costs become equal to marginal benefits. Lets say, there is an increase in the costs of

    accidents due to drunk driving. To deal with such situation, increase the level of precaution,

    which will decrease both -p(x) and marginal benefits, -p(x) A. This should continue until the

    marginal costs equal marginal benefits again.

    11 .An external change, i.e., something not attributable to the actions of potential

    injurers or victims that reduces the marginal probability of an accident, ceteris paribus.

    In case of an external change i.e. something which isnt directly attributable to the actions

    of potential victims or injurers that brings down the marginal probability of an accident, ceteris

    paribus, will cause the economically efficient precaution to increase. This is because an external

    change brings down the marginal benefits of precaution and becomes below the level of

    accompanying marginal costs. Or, marginal benefit now keeps on going lower at each level of

    precaution.

    To address this, the level of precaution should be brought down until the marginal

    benefits again become equal to the marginal costs. Example, in an event of earthquake, level of
    precaution should be decreased thus, increasing the level of both -p(x) and marginal benefits,

    -p(x) A. This should continue until the marginal costs equal marginal benefits again.

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