Private benefits and Social Benefits A private benefit refers to a benefit that the consumer of a good or service gets. Marginal private benefit (MPB) denotes the private benefit from absorbing one more unit of a good or service. An external benefit indicates a benefit that someone other than the consumer receives. The marginal external benefit is treated as the benefit of absorbing one more unit of a good or service that the consumer enjoys. Marginal social benefit indicates the marginal benefit enjoyed by the entire society - by the consumer and by everyone else on whom the benefit falls. Marginal social benefit is termed as the sum of marginal private benefit and marginal external benefit. That means MSB =MB + Marginal external benefit.  The marginal external benefit is termed as the vertical distance between MB and MSB curves.     It is impossible to satisfy unlimited wants by using limited resources. Singapore has ensured the efficient utilization of its resources. Free-rider benefits from something without giving effort or paying for it. In other words, free-riders use goods without contributing their fair share. Price is treated as the controller of the behavior of producers and consumers. Without price, the market will not provide anything. Producers obtain profit as profit is the firm's objective. People will not be able to survive much longer by contaminating the environment.   As the number of fishing boats expands, the quantity of fish caught increases to some maximum. Overfishing takes place when the maximum sustainable catch of fish decreases.  Marginal private benefit, MB, is termed as the average & catch of fish per boat. Marginal private benefit reduces as the number of boat increases. The marginal cost per boat is MC that is assumed constant. Equilibrium happens where MB equals MC. In equilibrium, the resource is overused because no one considers the effects of his/her actions on other users of the resources. The efficient use of a common resource needs the marginal social cost to equal marginal social benefit. |
Environmental Economics-Part A-Lecture 2-Sub Lecture 2B
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