The cost of running an electrical utility includes costs for fuel, labor, and capital. In addition, there are sometimes costs associated with pollution from the utility, such an increased health care costs for people living near the utility. To an economist, the costs associated with the pollution resulting from additional electricity are:
A) marginal private costs.
B) marginal social costs.
C) the difference between marginal social costs and marginal private costs.
D) the sum of marginal social costs and marginal private costs.

Question

Quizplus · Accepted Answer

The costs associated with pollution are external costs not borne by the utility, thus they represent the difference between marginal social costs (which include external costs) and marginal private costs (which do not).

The Cost of Running an Electrical Utility Includes Costs for Fuel