Economics explained
Category:
Costs and benefits
Concepts of Marginal private benefit, Marginal private cost, Marginal social benefit (MSB) and Marginal social cost (MSC)
The secret to scoring awesome grades in economics is to have corresponding awesome notes.
A common pitfall for students is to lose themselves in a sea of notes: personal notes, teacher notes, online notes textbooks, etc... This happens when one has too many sources to revise from! Why not solve this problem by having one reliable source of notes? This is where we can help.
What makes TooLazyToStudy notes different?
Our notes:
-
are clear and concise and relevant
-
is set in an engaging template to facilitate memorisation
-
cover all the important topics in the O level, AS level and A level syllabus
-
are editable, feel free to make additions or to rephrase sentences in your own words!
Looking for live explanations of these notes? Enrol now for FREE tuition!
Marginal private benefit = Marginal private cost
The demand curve represents the benefits that consumers derive from consuming a good as measured by the prices they are willing to pay. For this reason, the demand curve is also known as the marginal private benefit (MPB) curve.
The supply curve shows the firm's costs of production; these are marginal costs, hence the supply curve is also known as the marginal private cost (MPC) curve.
Allocative efficiency (no externalities)
If there are no externalities present, then the best outcome is at price Pe and output Qe. Any variation from this optimum will be a situation of market failure or allocative inefficiency.
Social benefit maximisation which maximises the public interest or the welfare of the whole society occurs when:
Marginal social benefit (MSB) = Marginal social cost (MSC)
Social benefit is defined by the private benefit plus external benefit:
marginal social benefit (MSB) = marginal private benefit (MPB) + marginal external benefit (MEB)
Social cost is defined by the private cost plus external cost:
marginal social cost (MSC) = marginal private cost (MPC) + marginal external cost (MEC)