a) Costs and benefits

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10 Terms

1
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  • social cost


  • the total cost to society produced from the production or consumption of a good or service


2
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  • the formula for social cost


  • social cost = private cost + external cost


3
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  • social benefit


  • the total benefit to society produced from the production or consumption of a good or service


4
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  • the formula for social benefit


  • social benefit = private benefit + external benefit


5
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  • private cost


  • the total cost to a firm to produce a good/service

  • the total cost to a consumer to consume a good/service


6
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  • private benefit


  • the total profit earned by a firm for producing a good/service

  • the total utility earned by a consumer for consuming a good/service


7
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  • external cost


  • the total cost to third parties produced by a negative externality


8
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  • an external cost occurs when…


  • social cost > private cost


9
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  • external benefit


  • the total benefit to third parties produced by a positive externality


10
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  • an external benefit occurs when…


  • social benefit > private benefit