Economics Externalities Questions Medium
Private equilibrium refers to the point at which the quantity demanded and quantity supplied in a market are equal, based on the private costs and benefits experienced by buyers and sellers. In other words, it is the market equilibrium that only takes into account the private costs and benefits associated with the production and consumption of a good or service.
On the other hand, social equilibrium takes into consideration the external costs or benefits that are not reflected in the private costs and benefits. Externalities are the spillover effects of economic activities on third parties who are not directly involved in the market transaction. These external costs or benefits can be positive or negative and are not accounted for in the private equilibrium.
Therefore, the difference between private and social equilibrium lies in the consideration of externalities. Private equilibrium only considers the private costs and benefits, while social equilibrium takes into account the external costs or benefits as well. Social equilibrium aims to achieve a more efficient allocation of resources by internalizing the externalities and ensuring that the social costs and benefits are properly accounted for in the market equilibrium.