The marginal social benefit of an activity equals its marginal private benefit plus its marginal external benefit.

Question

Quizplus · Accepted Answer

This statement is true. The marginal social benefit of an activity takes into account not only the benefits experienced by the individual participating in the activity (marginal private benefit) but also any additional benefits that accrue to third parties outside of the transaction (marginal external benefit). By adding these two together, we get the total marginal social benefit of the activity.

The Marginal Social Benefit of an Activity Equals Its Marginal