Social Cost

Social Cost

Social Cost, the total cost to society of any form of economic activity. In a free enterprise economy the fact that consumers are willing to buy a commodity or service indicates that society wishes its scarce resources to be used to produce it rather than other goods or services that consumers refrain from buying at existing prices. In this sense consumers' choice exercised through the price mechanism puts society's scarce resources to their most valued uses. One reason why it may not do so in practice is that the money price of a commodity may not reflect the full '' cost of production, so that consumers demand more of it than they otherwise would. For example, smoke pollution and traffic congestion impose indiscriminate costs on the community which are not reflected in the prices of goods produced by the factories giving rise to them. These indiscriminate costs, in the form of decreased efficiency of other factors, or decreased enjoyment of consumers of other goods, when added to private costs, make up the social cost of production of any commodity.

Divergence between social and private cost leads to the case in principle for restraining free exercise of choice by individuals, either by prohibiting or limiting certain forms of production or by imposing conditions to be satisfied before production is permitted, such as smoke control, building regulations, traffic control. The difficulty lies in practice, since the definition of indiscriminate costs to be included can often be widened to justify any degree of restriction of free consumers' choice considered desirable on political grounds. It has also been argued that to some or a large extent social costs are taken into account in market decisions. (R. H. Come and others.)

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Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this site is therefore not a final statement of economic doctrine.

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