ECO-4 Lecture Notes - Lecture 29: Social Cost, Deadweight Loss, Externality
Document Summary
Private cost : cost that is borne by the producer of a good/service. Marginal cost: cost of producing an additional unit of that good/service. Marginal private cost: cost of producing an additional unit of a good/service that is borne by its producer. External cost: cost of producing a good/service that is not borne by the producer but borne by other people. Marginal external cost: cost of producing an additional unit of a good or service that falls on people other than the producer. Marginal social cost : marginal cost incurred by the producer and by everyone else on whom the cost falls by society. = sum of marginal private cost & marginal external cost. Msc = mc + marginal external cost. At the efficient quantity, marginal social cost equals marginal social benefit. With no regulation, the market overproduces and creates a deadweight loss.
