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Economics explained


Costs and benefits

Private, external and social benefits

Private, external and social benefits

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Private benefits + external benefits = Social benefits

Private benefit

The private benefits are those that accrue solely to the individual making the action.

When a person has a vaccination against tuberculosis, they receive the private benefit of being immune to the disease.

External benefit

External benefits are the positive side-effects of production or consumption incurred by third parties.

When a person has a vaccination against tuberculosis, other people are also protected from this highly contagious disease.

Social benefit

The social benefits of a decision are all of the benefits that accrue from that decision.

The true benefit of the vaccination is called the social benefit.

This is an example of market failure because there are external benefits to society of vaccination programmes. If vaccinations were left to the choice of individuals, they would be under-consumed, mainly due to the price that would be charged for them.

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