Th1.3: Private, External and Social Costs and Benefits Flashcards
Define private costs/benefits
costs/benefits to the individual participating in the economic activity
PC+B: What does the demand curve represent?
private benefits
PC+B: What does the supply curve represent?
private costs
Define social costs/benefits
costs/benefits of the activity to society as a whole
Define external costs/benefits
costs/benefits to a third party not involved in the economic activity. they are the difference between private and social costs/benefits
What is a merit good?
a good with external benefits, where the benefit to society is greater than the benefit to the individual
What is a demerit good?
a good with external costs, where the cost to society is greater than the cost to the individual
Which tend to be over-provided and which tend to be under-provided and by who?
merit goods under provided by free market
demerit goods over provided by free market
Define a marginal cost/benefit
the extra cost/benefit of producing/consuming one extra unit of the good
Define MPB
the extra satisfaction gained by the individual from consuming one more of a good
Define MSB
the extra gain to society from the consumption of one more good
Define MPC
the extra cost to the individual from producing one more of the good
Define MSC
the extra cost to society from the production of one more good
