a) Costs and benefits

• define social cost

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

• state how to calculate social cost

• social cost = private cost + external cost

• define social benefit

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

• state how to calculate social benefit

• social benefit = private benefit + external benefit

• define private cost

• the total cost paid by a firm to produce or the total cost paid by a consumer to consume a good or service

• define private benefit

• the total profit earned by a firm from producing or the total utility earned by a consumer from consuming a good or service

• define external cost

• state what an external cost is equivalent to

• when producing or consuming a good or service produces a negative spillover effect

• negative externality

• state what causes an external cost

• when social cost > private cost

• define external benefit

• when producing or consuming a good or service produces a positive spillover effect

• positive externality

• state what causes an external benefit

• when social benefit > private benefit