High School

Social demand is equal to:

A. Market demand plus or minus externalities.
B. Public demand plus or minus externalities.
C. Tax revenue plus or minus externalities.
D. Private goods plus or minus externalities.

Answer :

Final answer:

Social demand includes not only the private benefits of consumers but also the external benefits for society. Social costs, on the other hand, include costs incurred by the firm in the production process, as well as external costs borne by society due to negative externalities such as pollution.

Explanation:

Social demand refers to the total level of demand for a good or service when both private and social benefits are taken into consideration. It includes not only the private benefits to the consumers but also the external benefits to the society which are not considered in the market demand (positive externalities).

For instance, market demand only reflects the private benefits from consuming a product. In contrast, social demand encompasses the positive externalities that benefit third-party individuals or society at large.

When dealing with negative externalities, such as pollution, the interaction of demand and supply does not account for all social costs. Market failure occurs because firms do not account for all costs incurred in the production of output and/or consumers do not account for all the benefits obtained.

The social costs of production consist of the private costs that a firm incurs along with the external costs that society bears due to pollution or other negative externalities.

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