Economics Externalities Questions
Private costs refer to the costs incurred by an individual or firm in producing or consuming a good or service. These costs include the expenses directly borne by the producer or consumer, such as wages, raw materials, and utilities.
On the other hand, social costs encompass both the private costs and any additional costs imposed on society as a whole due to the production or consumption of a good or service. These additional costs, known as external costs or negative externalities, are not accounted for by the individual or firm directly involved in the transaction. Examples of external costs include pollution, congestion, and health issues.
In summary, the difference between private and social costs lies in the inclusion of external costs in the latter. While private costs only consider the expenses borne by the individual or firm, social costs take into account the broader impact on society.