Question

To maximize social welfare, which of the following must always be TRUE?

A) marginal social benefit equals marginal social cost

B) marginal private benefit equals marginal social cost

C) marginal social benefit equals marginal private cost

D) marginal private benefit equals marginal private cost

Answer 1

The right answer is A i.e. marginal social benefit equals marginal social cost. Because by taking in to account both the social cost and social benefits one can maximize the social welfare, as private benefit and private cost does not take in to account the social benefit or social harm.