Answer to Question 1
Many people believe that markets are fair. Labor and capital are paid in accordance with the value of what they produce. Redistributing income violates the right to contract and the right to property (what an individual earns). Taxation and transfer programs interfere with the basic incentives of the market. Individuals have less incentive to work, save, and invest. Last, it is unclear whether the redistribution of income programs in the United States have done a good job of keeping people out of poverty.
Answer to Question 2
Accounting profit is the difference between a firm's revenues and explicit costs, while economic profit is the difference between a firm's revenues and the sum of its implicit and explicit costs. Accounting profits will be positive, but economic profits will be negative if implicit costs are larger than a firm's accounting profit. For example, an amusement park located in the heart of a city may earn enough revenues to cover wages and other explicit costs. But the opportunity cost involved in running an amusement park on prime real estate in the city might be quite high, leading to negative economic profits.
For example, suppose a firm has revenues of 100, explicit costs of 80, and implicit costs of 30 . Its accounting profit will equal 100 - 80 = 20 but its economic profit will equal 100 - 80 - 30 = -10 .
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