Talk:Social cost

From Wikipedia, the free encyclopedia

[edit] Benefits and costs

Surely the author means that if social benefits exceed private benefits? Private costs cannot exceed social costs ipso facto, as the latter includes private costs. Furthermore, the author speaks of the benefits of education, rather than its costs. 86.130.40.37 13:45, 5 November 2006 (UTC)

[edit] missing diagram

Is there a missing diagram, or am I just not seeing it? Dudboi 05:36, 1 September 2006 (UTC)

Somebody removed it because the image is dead. I'll try to draw an ersatz version soon. __earth ^(Talk) 08:47, 2 October 2006 (UTC)

[edit] Negative cost ≠ gain?

I'm confused by the first one and a half paragraphs. The first seems to assert

cost_social = cost_agent + cost_society,

(taking the word "include" to mean "include" as in "the price includes tax") and the next sentence states (synonymously/reduntantly?)

cost_social = cost_private + cost_external.

Now the first sentence of the second paragraph states

,

which is not the math I learned in school. Can it be that that paragraph confounds cost with gain? — Sebastian (talk) 06:16, 18 October 2006 (UTC)

The article is correct, though I can understand how you misunderstand. An external cost is a negative externality, so the presence of a negative externality would mean that external cost has a positive value. I believe you have mistaken the concept to being an externality which is negative, rather than a negative externality which is positive.

The problem lies in how the author writes "If private costs are greater than social costs, then a positive externality exists". I was taught that a positive externality is when social benefits exceed private benefit, and has nothing to do with costs, so maybe this article needs some cleaning up. I'm also not very excited by the how the article is worded, but I suppose that's just me.Dudboi 12:50, 31 October 2006 (UTC)

Thank you for your reply. Yes, the misunderstanding is as you say. However, this was not because of the double negation in the second paragraph, but simply because of the statement "the costs external ... (called externalities or external costs)". If I understand you correctly, this should be "the costs external ... (called external costs or negative externalities)". I think we also should get rid of the redundant sentence in the intro. Synonyms can and should be relegated to the linked articles. I'll edit the article as I understand it; please correct if I misunderstood. — Sebastian (talk) 16:49, 31 October 2006 (UTC)

Actually, after looking at Cost#Comparing_Private.2C_external.2C_social_and_psychic_costs, I found another problem: There, private costs are defined as costs a buyer pays. This article, however, says "the economic agent" - which could be either the buyer or the seller. Then it uses the example of environmental pollution, where the polluter often is often seen to be the seller (such as a power plant) rather than the buyer (electricity consumer). Or does this article imply that consumers are the polluters because they bear the ultimate responsibility for what happens with their money? — Sebastian (talk) 17:19, 31 October 2006 (UTC)

Technically, the firm would sell its product at a price which would fully cover its variable costs, otherwise there will be no point in producing the good. (See the last paragraph of profit maximization) Thus, the cost to the consumer (price of the good) should reflect all the costs that the producer acquires in producing the good. Then, the consumer should only pay the amount equal to the cost to the producer. That is, the cost to both consumers and producers are the same. However, this is only true for perfectly competitive firms in the long run (assuming no government intervention to change prices), where total revenue equals total costs. In reality, firms, especially those with higher degrees of market power, are able to set a price such that it is higher than the costs they incur, so the cost to the consumer and cost to the producer do not tally. So the assumption here is that the cost to the buyer = cost to the seller, and not that the consumers are the polluters.

To answer your question, while it is true that consumers signal to producers how much good to produce (and therefore how much pollution is generated) through their willingness to buy, I don't think it's accurate to say that the consumers are the polluters, since firms can use methods of production which produce less pollution. Also, no consumer, even with the knowledge that consuming a good will lead to negative externalities, will be willing to pay a higher price than the firm offers for the good.

This article is a bit messy, I think it needs cleaning up, especially the second paragraph - the whole bit about positive externalities, which, apart from being wrong, doesn't really fall under costs at all.Dudboi 12:55, 5 November 2006 (UTC)

'If private costs are greater than social costs'