Question

Economists use a special vocabulary to describe externalities. Private cost is the cost to a firm of producing a good. External cost is the cost imposed on 3rd parties when production takes place. Social cost is the total cost to society when a good is produced; in other words, social cost is the sum of private cost and external cost.

a. True
b. False

Answer 1

Social costs refer to the total cost to society when a good is produced, including both the private costs incurred by firms and the additional costs incurred by third parties. It is the sum of private cost and external cost.

Step-by-step explanation:

Social costs refer to the costs that include both the private costs incurred by firms and also additional costs incurred by third parties outside the production process, like costs of pollution. In the case of production, private cost is the cost to a firm of producing a good, while external cost is the cost imposed on third parties when production takes place. Social cost is the total cost to society when a good is produced, which is the sum of private cost and external cost.