Social Costs and Benefits Flashcards
Define
private benefit
A financial benefit, such as sales revenue, enjoyed by the person or firm responsible for the action or decision that created it.
Define
external benefit
A benefit arising from a positive externality, such as disease prevention due to vaccinations, enjoyed at no cost by other people or organizations due to actions or decisions taken by others.
Define
positive externality
This occurs when an individual or firm making a decision will not enjoy the full benefit of that decision. That is, it provides an external benefit for other people and organizations that were not involved in the action or decision that created it.
Define
private cost
A financial cost, such as the purchase of a new computer, incurred by the person or firm responsible for the action or decision that caused it.
Define
external cost
A cost arising from a negative externality, such as pollution, that is incurred by other people or organizations and not by those responsible for the action or decision that caused it.
Define
negative externality
This occurs when an individual or firm making a decision will not have to pay the full cost of that decision. That is, the individual or firm imposes an external cost on other people and organizations that did not agree to the action or decision that created it.
Define
social cost
The total cost to society of an activity, including both its private and external costs.
total social cost = private costs + external costs
Define
social benefit
The total benefit to society of an activity, including both its private benefits and external benefits.
total social benefit = private benefits + external benefits
Define
private expenditure
Money spent by private individuals and firms on consumer and capital goods and services.
Define
public expenditure
The amount of money spent in total by government organizations. It includes spending on recurrent costs such as public sector wages and capital items, including investments in public infrastructure such as roads.
When will an activity be considered an economic use of resources and help to raise economic welfare?
This will happen when the social benefits exceed the social costs of the activity. Economic welfare can be increased by encouraging more production and consumption.
When will an activity be considered an uneconomic use of resources?
This will happen when the social costs exceed the social benefits of an activity. Economic welfare can be improved by reducing production and consumption.
