The additional external cost incurred by non-market participants for each additional unit of the good.
The marginal social costs of producing the good minus the marginal private costs.
The total external costs incurred by non-market participants as a result of the negative externality.
The marginal social benefits of producing the good minus the marginal social costs.
1 answer
In the Pigouvian approach, the marginal external costs of producing a good equal the marginal social costs of producing the good minus the marginal private costs.
This is because marginal external costs represent the additional costs incurred by non-market participants that are not reflected in the market price of the good, thus distinguishing them from private costs.
