1.3.2 Externalities

• types of cost

  private cost - cost to an economic actor of an activity

  social cost - sum of private costs plus any costs to wider society
• types of benefit

  private benefit - what each individual economic actor gains from a transaction

  social benefit - private benefits plus any benefits to society in general
• how are costs/benefits related to market failure 


  if an economy is functioning correctly , the market mechanism will produce a level of output where social costs are equal to social benefits