Social Costs

Social cost is defined as a sum of the private cost and external costs. The social cost is generally not borne by an individual. It may be borne by entire society, city or even country. This is not a one-time cost like private cost. This cost is recurrent and it is very difficult to calculate due to the inclusion of external costs. The cost may result from an event, action, or policy changes. Social costs are not calculated whenever a seller sells any product or item to buyer. This cost is added up from the use of that product.

Social costs are generally used by the government where the parliamentarians debate the benefits or hazards caused by development. For example, if the state is planning to invest in the power plants. The actual investment for raw materials to build power plant is called private cost and the implication of the plant on humans, animal life and environment are called externalities. The total cost of private cost and externalities adds to Social Cost.

This cost when applied for a product or item can help the analysts if the product is beneficial for society or not. If the externalities are negative, then social costs is greater than private cost. From above example, this means that constructing a power plant will affect society by means of pollution, environment degradation, etc. If the externalities are positive, then social costs are greater than private cost. In this case the society benefits from the actual transaction between buyer and seller.

Social costs are not quantifiable. Whenever there is a transaction between buyer and seller, the social cost is not taken into account, because these costs are time variant. Social costs are calculated using marginal social cost curve. This curve lets the cost analysts estimate the social cost by taking into account all types of costs like, taxes, private costs, external costs, and various factors affecting the overall cost.

Questions

• What is Social cost?
• How does it helps in analyzing the affect on society from a particular product ?