social costs and benefits Flashcards
social cost
total cost paid for the consumption and production of a good or service by society
social costs = private cost + external cost
private cost
costs incurred by those who are directly consuming or producing a good or service
external cost
harmful effects on third parties that are not involved in the consumption or production of a good or service.
negative externalities
when the social costs outweigh the private costs [the external costs are not considered]
social benefits
total benefits to society from the production and consumption of a good or service
social benefits= private benefits + external benefits
private benefits
benefits to those involved in the production of a good or service
external benefits
benefits to third parties that are not involved in the consumption or production of a good or service.
For example: taking a bus reduces congestion on a road, enabling other road users to travel more quickly.
