Question : The concept of marginal social cost refers to:
Option 1: The cost incurred by an individual or firm in producing an additional unit of a good or service
Option 2: The cost incurred by society as a whole in producing an additional unit of a good or service
Option 3: The cost incurred by the government in producing an additional unit of a good or service
Option 4: The cost incurred by consumers in producing an additional unit of a good or service
Correct Answer:
The cost incurred by society as a whole in producing an additional unit of a good or service
Solution : The correct answer is (b) the cost incurred by society as a whole in producing an additional unit of a good or service.
Marginal social cost takes into account not only the private costs incurred by individuals or firms in producing an additional unit of a good or service but also the external costs imposed on society. It includes both the private costs and the external costs associated with the production process.
By considering both the private costs and the external costs, the concept of marginal social cost provides a broader perspective on the true cost of production. It helps in evaluating the overall social efficiency and sustainability of economic activities and can guide policymakers in implementing measures to internalize external costs and promote socially optimal outcomes.
