Marginal Social Benefit vs Marginal Social Cost
Marginal Social Benefit and Marginal Social Cost are two Market Failure & Government concepts in AP Economics that students often mix up. In short: marginal social benefit is marginal social benefit is the total benefit to society from consuming one more unit, equal to private benefits plus external benefits. Meanwhile, marginal social cost is marginal social cost is the total cost to society of producing one more unit, equal to private costs plus external costs. Here is how they compare side by side.
Marginal social benefit is the total benefit to society from consuming one more unit, equal to private benefits plus external benefits.
It equals the marginal private benefit plus the marginal external benefit. With a positive externality, the marginal social benefit curve lies above the demand curve. The socially efficient quantity occurs where marginal social benefit equals marginal social cost.
Marginal social cost is the total cost to society of producing one more unit, equal to private costs plus external costs.
It equals the marginal private cost plus the marginal external cost. With a negative externality, the marginal social cost curve lies above the supply (marginal private cost) curve. The socially efficient quantity occurs where marginal social cost equals marginal social benefit.
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