Economics Environmental Externalities Questions
Private costs refer to the expenses incurred by an individual or a firm in the production or consumption of a good or service. These costs include the direct costs such as labor, materials, and capital, as well as indirect costs like overhead expenses and taxes.
On the other hand, social costs encompass both the private costs and the external costs imposed on society as a whole due to the production or consumption of a good or service. These external costs, also known as negative externalities, are the unintended consequences that affect third parties who are not directly involved in the transaction. Examples of external costs include pollution, congestion, and health issues.
In summary, the main difference between private and social costs is that private costs only consider the expenses borne by the individual or firm involved, while social costs take into account the additional costs imposed on society as a result of the economic activity.