Social cost  

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Kunstformen der Natur (1904) by Ernst Haeckel
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Kunstformen der Natur (1904) by Ernst Haeckel

Social cost, in neoclassical economics, is the sum of the private costs resulting from a transaction and the costs imposed on the consumers as a consequence of being exposed to the md's transaction for which they are not compensated or charged. Private costs are the direct costs of the producer to produce the good or service. Social cost includes these private costs, and in additional the costs (external costs) associated with the production of the good which are not dealt with by the free market. Mathematically, social marginal cost is the sum of private marginal cost and the external costs. For example, when selling a glass of lemonade at a lemonade stand, the private costs involved in this transaction are the costs of the lemons and the sugar and the water that are ingredients to the lemonade, the opportunity cost of the labor to combine them into lemonade, as well as any transaction costs, such as walking to the stand. An example of marginal damages associated with social costs of driving includes wear and tear, congestion, and the decreased quality of life due to drunken driving or impatience.

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