Marginal Cost/Benefit
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Market (Private) Costs
costs recognized by market participants
Marginal Benefit
The amount of satisfaction received from consuming the last unit of a good or service
Marginal Cost
The cost to buy or produce one more unit of a good or service. Includes vale of alternatives given up to produce that unit (opportunity cost) Marginal Cost= Direct Costs (out of pocket) + Indirect Costs (opportunity cost)
Marginal Social Cost (MSC)
Cost of what is and isn't perceived by the market. Market costs + external costs= social costs
Decision Rule
If MSB > MSC, Do it!
External Costs
Costs occurred not recognized by market participants
Marginal Social Benefit (MSB)
Market benefit + external benefit= social benefit Last event/decision creates MSB
