Differentiate between private and social cost
Hi Tsering Tashi,
Private Cost is defined as:-
Private cost refers to the cost of production incurred and provided for by an individual firm engaged in the production of a commodity. It is found out to get private profits.
This cost has nothing to do with the society. It includes both explicit as well as implicit cost. A firm is interested in minimising private cost.
Social Cost is:-
Social cost refers to the cost of producing a commodity to the society as a whole. It takes into consideration all those costs, which are borne by the society directly or indirectly. Social cost is not borne by the firm. It is rather passed on to persons not involved in the activity in the direct way. Social cost is a much broader concept.
It is found out to get social profits rather than private profits. The production of a commodity by a firm generates advantages (benefits) as well as disadvantages (cost) to other members of society, called external benefits and external costs respectively.
Hope this will help,please feel free to ask if you have any other queries.
Thank You.
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