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Externalities: Social Benefits and Social Costs definitions

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  • Externality
    A cost or benefit impacting those not directly involved in a transaction, extending effects beyond buyers and sellers.
  • Negative Externality
    A situation where outsiders bear additional costs due to a market activity, often leading to overproduction.
  • Positive Externality
    A situation where outsiders receive additional benefits from a market activity, often resulting in underproduction.
  • Private Cost
    The expense directly incurred by producers, typically reflected in the supply curve, excluding effects on bystanders.
  • Social Cost
    The total expense to society, combining private and external costs, representing the true cost of production.
  • External Cost
    A burden imposed on outsiders by a market activity, not considered by those making the transaction.
  • Private Benefit
    The gain received directly by consumers, typically shown by the demand curve, excluding effects on others.
  • Social Benefit
    The total gain to society, combining private and external benefits, reflecting the full value of consumption.
  • External Benefit
    A positive effect received by outsiders from a market activity, not considered by those making the transaction.
  • Marginal Social Cost
    The additional expense to society for producing one more unit, including both private and external costs.
  • Marginal Social Benefit
    The additional gain to society from consuming one more unit, including both private and external benefits.
  • Market Failure
    A situation where market outcomes are inefficient, often due to unaccounted externalities.
  • Deadweight Loss
    A loss of total surplus resulting from inefficient production or consumption, often visualized as a 'bow tie' on a graph.
  • Property Rights
    Legal ownership and control over resources, crucial for determining who bears costs or receives benefits from externalities.
  • Equilibrium Quantity
    The amount traded where supply and demand intersect, which may differ from the socially optimal level when externalities exist.