Which of the following answers correctly identifies social cost?
A)market price + external cost = social cost (True Answer )Correct
B)external cost - market price = social cost
C)market price + cost of production = social cost
D)negative externality + positive externality = social cost

Question

Quizplus · Accepted Answer

Social cost is defined as the sum of market price and external cost. This is because external costs are costs imposed on third parties who are not involved in the transaction, and thus are not reflected in the market price. Therefore, to calculate the true cost of the transaction to society, the market price must be added to the external cost.

Which of the Following Answers Correctly Identifies Social Cost