1.Differentiate between social cost and private cost, and give examples for each? ( 3 points)

Question

2. Distinguish between total utility and marginal utility and support your answers with
appropriate examples?�

Answer 1

Sure, here are the detailed responses to your questions:

### 1. Differentiate Between Social Cost and Private Cost

**Social Cost**:
- **Definition**: Social cost includes the total cost to society as a whole due to the production or consumption of a good or service. It encompasses both private costs borne by producers and consumers and external costs to third parties not involved in the transaction.
- **Examples**:
- **Pollution from a Factory**: If a factory emits pollutants into the air, the health risks to nearby residents are part of the social cost, even though they're not reflected in the factory's operating expenses.
- **Traffic Congestion**: The costs imposed on all motorists in terms of time lost and increased fuel consumption due to one more car on the road are social costs.

**Private Cost**:
- **Definition**: Private cost refers to the cost borne by the producer or consumer directly involved in an economic transaction. This is typically reflected in the prices paid and received for goods and services.
- **Examples**:
- **Manufacturing Costs**: The expenses that a company incurs for labor, raw materials, and overheads in manufacturing a product.
- **Consumer Purchase Price**: The price a consumer pays for a good or service, like the cost of buying a cup of coffee.

### 2. Distinguish Between Total Utility and Marginal Utility

**Total Utility**:
- **Definition**: Total utility is the aggregate satisfaction or benefit that a consumer derives from consuming a certain quantity of goods or services.
- **Example**: If consuming three slices of pizza gives you a satisfaction level of 30 units of utility in total, this number represents your total utility from eating all three slices.

**Marginal Utility**:
- **Definition**: Marginal utility refers to the added satisfaction or benefit that a consumer receives from consuming one additional unit of a good or service.
- **Example**: If eating the first slice of pizza gives you 15 units of utility, the second slice gives you 10 units, and the third slice gives you 5 units of utility, then the marginal utility of the third slice of pizza is 5 units. This shows how the additional satisfaction decreases with each additional slice consumed, illustrating the law of diminishing marginal utility.

### Comparison through an Example:
- **Total Utility**: Suppose you derive 50 units of utility from eating four apples.
- **Marginal Utility**: The utility received from consuming each successive apple might be 20 units for the first apple, 15 units for the second, 10 units for the third, and 5 units for the fourth. Here, the marginal utility decreases with each additional apple consumed.

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