What this lesson teaches
I can describe how people and firms gather information, weigh costs and benefits, and review choices and their side effects.
Syllabus 9570, 1.1.2(b). Decision-Making Process of Economic Agents: In the pursuit of their objectives, economic agents gather information, weigh benefits and costs, consider constraints and perspectives before making decisions. They take into account the intended and unintended consequences, and any changes occurring, before reviewing the decisions
Make a guess
A city doubles parking charges in the city centre to cut traffic jams. Which result was NOT part of the aim?
- Shops in the centre lose some customers to suburban malls.
- Fewer cars drive into the centre at the busiest times of the day.
- Traffic jams in the centre become shorter.
- More people take the MRT to the centre.
Show the answer
Shops in the centre lose some customers to suburban malls.
This is an unintended consequence. It falls on shop owners, who were not the target of the policy.
Decisions have intended effects and unintended ones, often on people who were not part of the decision.
A decision is made for an intended result. It can also have unintended consequences: effects that were not the aim.
Unintended consequences can be good or bad, and they often fall on third parties who had no say in the decision.
For example, raising cigarette taxes aims to cut smoking. An unintended consequence may be more smuggling of cheap, illegal cigarettes.
In an exam, explain how the consequence happens and who it affects. Do not just list possible effects.
- Intended
- The aim of the decision.
- Unintended
- Side effects, often on third parties.
Worked example: Longer library hours
A council keeps a library open later so that people who work in the day can use it. Staff then work more late shifts, and nearby residents report more evening noise.
- Intended consequence: better access for day workers.
- Unintended consequence 1: staff work more late shifts, which may affect their well-being or cost more in overtime.
- Unintended consequence 2: residents nearby face more noise, a cost to third parties.
- The council should weigh these against the gain in access.
Watch out for this
Unintended consequences are always harmful.
An unintended consequence is simply one that was not the aim. It can be beneficial, like new cafes opening near an MRT station built for commuters.
Check your understanding
A new MRT line is built to cut travel times. Property prices near the stations rise. What is this?
- An opportunity cost of the decision, borne by home buyers.
- An unintended consequence of the decision.
- The intended consequence of the decision.
Show the answer
An unintended consequence of the decision.
Right. Higher property prices were not the aim, but they follow from better access.