Problem

The AAA Aquarium Co. sells aquariums for $\$ 20$ …

23:19

Problem 38 Hard Difficulty

In the argument for why perfect competition is allocatively efficient, the price that people are willing to pay represents the gains to society and the marginal cost to the firm represents the costs to society. Can you think of some social costs or issues that are not included in the marginal cost to the firm? Or some social gains that are not included in what people pay for a good?

Answer

Some social cost that are not included in the marginal cost of the firm are the cost of negative
externalities like pollution, health hazard, etc. Some social benefits which are not included in the
price of the good are positive externalities like benefit of education to others, vaccination benefit
to those who do not get vaccinated, etc.

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Principles of Microeconomics for AP® Courses

Chapter 8

Perfect Competition

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Video Transcript

well of a social cost. Pollution. Right? When a firm decides Thio do something that pollutes the air around it, they technically don't have to pay for it. It's not associated with their marginal cost, but they still have thio. It still hurts the people around them. It's a social cost. Another example would be, if a firm or if you, ah, have an airport built right next to your home. Ah, the people around it have to live with the ah, the noises. So you'd have noises, I guess, Um, it hurts the people around you. It reduces the value of their home, and you don't have to pay for it. It's not associate ID in your cost. It's It's hurting somebody else on, you know? Lastly, if you have something like if you start to build a factory and it hurts somebody else else's, you know, work space, it would cause, you know, in my economics course, my professor used the example of a brewery. If they ah, you know, brewed beer. To the extent that people got drunk on the fumes in the factory right next to it, it would hurt, um, you'd hurt the production of the other factory, so that costs that marginal cost isn't associated with the building of the brewery or any of the beer created by the brewery. But it still has a cost to somebody else outside of the producer and the consumer. And now a social gain would be something that benefits society. So when you buy those metal straws instead of those plastic straws, it helps the turtles. Um, and that's not really associated with the cost or the cost from the consumer. The producer. For some people, that may be, but it might just be that they want something reusable, Um, or it could be a reusable water bottle. Another example would be, ah, anything that is public to everybody schools. Um, when people build schools, they're giving people easier access to education. That is not that burden of education is not really handled by anybody else. It just benefits society. Okay, uh, or you could build parks when the government builds parks. It benefits society because the people using the parks don't always have to pay to use the park's um, and now you could have basically anything that helps people that aren't um, associated with the direct interaction between producer and consumer

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