Marginal private benefit

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Marginal private benefit
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The marginal private benefit is the part of the activity's marginal benefit which is received through the persons who run the activity.

On the other hand, the marginal social benefit estimates the incremental benefit of activity for society. The similar definition has the marginal social costs and marginal private costs. Therefore, supply curves and demand are the same as accordingly:

  • marginal private cost curves and
  • a marginal private benefit.

Public goods supply external benefits so it means that the public goods generate a positive externality. Positive externality or the external benefit is gauged through the amount to which social benefits are more than private benefits. In other circumstances, can appear the negative externalities. The negative externality appears when the social cost crosses the private cost. While the supplying of the public good is remain to private markets so the individuals will purchase entities of the public good until[1]:

  • equality between their marginal private costs and
  • their marginal private benefits.

Generating detrimental externalities

If the activities of the firm generate detrimental externalities, so its marginal social cost will be major than its marginal private cost, when the business firm will only ground its pricing on its private cost. Its because of not paying the remainder of the social costs of its action. However, it even does not know how big that remaining cos is. Summarizing when the firm's activity brings about detrimental externalities, so the output of the marginal benefits will be smaller than marginal social costs in the free market. Moreover, lower outputs will be socially desirable [2].

The marginal social cost

The sum of the marginal social cost of an activity is marginal external costs (MEC) + its marginal private cost (MPC), (negative or positive) which was sustained by others who get no compensation for the ensuing damage to their well- being.

MEC + MPC = MSC

The marginal private cost

The marginal private cost is the part of an activity's marginal cost which the persons who carry out about the activity pay for it[3].

Private Benefits and Social Benefits

The private benefit is a benefit which is received for the consumer of a service or good. Whereas, the marginal benefit is the benefit of an additional entity of a service or good. So the marginal private benefit is a benefit from an additional entity of a service or good which is received for the consumer of service or good [4].

Footnotes

  1. (R.C. Free 2010)
  2. (W. Baumol, A. Blinder 2008)
  3. (R.A. Arnold 2007)
  4. (M. Parkin, M. Powell, K. Matthews 2008)

References

Author: Mateusz Gołda