The costs imposed on those who are not involved in an activity are known as

The costs imposed on those who are not involved in an activity are known as

• A. Private Cost
• B. External Cost
• C. Social Cost
• D. Internal Cost

Answer: (B)

External costs are the costs of an activity that are borne by people who are not involved in the activity itself. This happens when the decision-maker does not pay for all the resources used or the negative effects they generate, so those effects fall on others. For example, a factory might emit pollution. The factory and its workers bear its private costs (like raw materials and wages), but the health costs, cleaning up pollution, and any damage to nearby residents’ property are costs spread across society. Those people didn’t choose to incur the pollution, yet they pay the price in various ways. That’s why these costs are called external. Private costs are the costs to the decision-maker (the firm or individual). Social costs include both private costs and external costs, reflecting the total burden on society. Internal costs is not the standard term used for this concept; it aligns with private costs. So the term that describes costs imposed on non-participants is external costs.

External costs are the costs of an activity that are borne by people who are not involved in the activity itself. This happens when the decision-maker does not pay for all the resources used or the negative effects they generate, so those effects fall on others.

For example, a factory might emit pollution. The factory and its workers bear its private costs (like raw materials and wages), but the health costs, cleaning up pollution, and any damage to nearby residents’ property are costs spread across society. Those people didn’t choose to incur the pollution, yet they pay the price in various ways. That’s why these costs are called external.

Private costs are the costs to the decision-maker (the firm or individual). Social costs include both private costs and external costs, reflecting the total burden on society. Internal costs is not the standard term used for this concept; it aligns with private costs. So the term that describes costs imposed on non-participants is external costs.