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Chapter 12: Q.16 (page 297)

What is the difference between private costs and social costs?

Short Answer

Expert verified

The main difference between private costs and social costs is that private cost is the cost incurred by an individual or a firm while social cost consists of both the private costs and any other external costs.

Step by step solution

01

Definitions :

Private cost : It is defined as a cost incurred by a person or a company who is directly involved in a transaction.

Social cost : It is defined as the total of the transaction's private expenses and the costs imposed on consumers as a result of their exposure to the transaction for which they are not paid.

02

Differences : 

Private Cost Social Cost
Private cost only includes the cost incurred by a firm or an individual.Social cost includes private costs as well as the other external costs.
Private cost has nothing to do with society.Social cost is all about society's loss or benefit.
Example - Private costs of an airport are - 1. Cost of constructing the airport and wages of the workers.Example - Social costs of the airport are the private costs as well as noise and air pollution, risk of an accident, loss of landscape.

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Most popular questions from this chapter

What is a marketable permit and what incentive does it provide for a firm to account for external costs?

Identify the following situations as an example of a negative or a positive externality:

a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds.

b. Your neighbor paints his house a hideous color.

c. Investments in private education raise your country鈥檚 standard of living.

d. Trash dumped upstream flows downstream right past your home.

e. Your roommate is a smoker, but you are a nonsmoker.

Refer to Table 12.2. The externality created by the refrigerator production was \(100. However, once we accounted for both the private and additional external costs, the market price increased by only \)50. If the external costs were \(100 why did the price only increase by \)50 when we accounted for all costs?

Technological innovations shift the production

possibility curve. Look at graph you sketched for

Exercise 12.13 Which types of technologies should

a country promote? Should 鈥渃lean鈥� technologies be

promoted over other technologies? Why or why not?

Classify the following pollution-control policies as command-and-control or market incentive-based.

a. A state emissions tax on the quantity of carbon emitted by each firm.

b. The federal government requires domestic auto companies to improve car emissions by 2020.

c. The EPA sets national standards for water quality.

d. A city sells permits to firms that allow them to emit a specified quantity of pollution.

e. The federal government pays fishermen to preserve salmon.
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