16.2 : Private Cost and Benefit

Private costs are the expenses that businesses or individuals incur in a market exchange when producing or purchasing a good. These costs include everything spent directly by the supplier to make and deliver the product to market or everything spent by the consumer to purchase the product.

For instance, in a coffee shop, private costs to the producer include the price of coffee beans, milk, sugar, employee wages, utility bills, and all the other expenses that go into selling coffee. In a competitive market, this private marginal cost is reflected in the market price that is charged to the customer. The private marginal cost of production is evaluated as the cost to the producer of producing one additional cup of coffee.

Private benefits refer to the gains or advantages that businesses or individuals receive from selling or consuming a good.

For example, the private benefit for the coffee shop is the profit made from selling coffee. For customers, the private benefit includes the enjoyment and satisfaction they derive from drinking the coffee.

Additionally, the private marginal benefit can be evaluated as the extra revenue earned from selling one additional unit of a product. For the coffee shop, this would be the additional revenue from selling one more cup of coffee.

In summary, private costs are the expenses borne by either the producer or consumer for producing or purchasing goods. Private benefits are the gains obtained by the producer or consumer from these activities. If any benefits or costs exist that impact anyone other than the producers and consumers engaging in the market transaction, these are not included in the calculation of private marginal benefits or costs.