Private costs and benefits, externalities and social costs and benefits

Need to know

What you need to know

• Marginal Private Cost (MPC) is the cost to the producer of producing one additional unit of a good.
• Marginal Private Benefit (MPB) is the benefit to the consumer of consuming one additional unit of a good.
• The free market equilibrium is established where MPC = MPB.
• This equilibrium does not account for any effects on third parties outside the transaction.

Explanation

Private costs and benefits, externalities and social costs and benefits

1. Marginal Private Cost (MPC) is the cost to the producer of producing one additional unit of a good.
2. Marginal Private Benefit (MPB) is the benefit to the consumer of consuming one additional unit of a good.
3. The free market equilibrium is established where MPC = MPB.
4. This equilibrium does not account for any effects on third parties outside the transaction.