Which term captures the costs borne by society as a whole, not just by the individual agents?

• A. Private Cost
• B. Private Benefit
• C. Externalities
• D. Social Cost

Answer: (D)

The main idea here is the total cost that production or consumption imposes on society, not just what the individual or firm pays. Private cost is what the agent bears directly. Externalities are spillover effects on others, which can be negative (costs to others) or positive (benefits to others). Social cost combines private costs with those external costs, giving the full burden on society. For example, a factory’s private costs include materials and labor, but pollution creates additional health and cleanup costs for residents; these extra harms are external costs, and adding them to the private costs yields the social cost. When external costs exist, social cost is higher than private cost, signaling potential inefficiency in the market. Since the question asks for the term that captures costs borne by society as a whole, the correct term is social cost.