Social Cost and benefits
Every business activity which takes place has some benefits and costs
attached to it. The benefits go both to the owners of the firm as well
as to external stakeholders. In the same way the owners and the external
stakeholders have to pay a cost for the activities of the business.
Talking about…
Talking about…
Private cost
It is the cost of setting up the business. The owner(s) pay for the
hire of machinery, buying of materials, payments of wages. This is
termed as Private Cost.
Private benefit
The monetary benefits i.e. the revenue earned by the firm is a benefit for the owner and is termed as Private benefit.
External Cost
The problems that the external stakeholders have to bear due to the
firm’s activity are known as external cost. Example: cleaning a river
which has been polluted by a firm’s waste products. Private firms
usually ignore external cost.
External benefits
Some firms can cause external benefits. These are the benefits to the
external stakeholders due to the activity of firm. For example, a firm
may train workers, which might get them better wages in other firms.
These external benefits are free.
Social
cost is the total cost paid for by the society due to the activities of
a firm. It is the sum of all the external cost and private cost.
Social benefit is the total benefit arising due to the production of
goods and services by a firm. This is equal to the total of private
benefits and external benefits.
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