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The Broken Window Fallacy States That When a Window Breaks

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The broken window fallacy states that when a window breaks and someone spends money to repair it, they have created new economic activity that would not have otherwise taken place.


Definitions:

Long-run Average Total Cost

The per unit cost of production when all inputs, including capital, are variable, assuming optimal efficiency.

Economies of Scale

Describe the cost advantages that enterprises obtain due to the scale of their operations, typically resulting in reduced costs per unit with increased output.

Long-run Average Total Cost

The average cost per unit of output when all inputs, even physical capital, are adjustable, over a sufficient time period.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, characterized by a reduction in average cost per unit when output is increased.

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