9708 · 7.4
Private costs and benefits, externalities and social costs and benefits
**Externalities** (7.4) are core A Level diagram work. Shade **DWL** and label **Q_market** vs **Q_social** on every answer. Distinguish **production** vs **consumption** externalities.
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
- 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.