Marginal Social Cost - MSC

AAA

DEFINITION of 'Marginal Social Cost - MSC'

The total cost to society as a whole for producing one further unit, or taking one further action, in an economy. This total cost of producing one extra unit of something is not simply the direct cost borne by the producer, but also must include the costs to the external environment and other stakeholders.

Calculated as:

Marginal Social Cost (MSC)


Where:
MSC = Marginal Social Cost
MPC = Marginal Private Cost
MEC = Marginal External Cost (Positive

INVESTOPEDIA EXPLAINS 'Marginal Social Cost - MSC'

For example, take the case of a coal plant polluting a local river. If the coal plant's marginal social costs are more than its marginal private costs, the MEC must be positive (and therefore resulting in a negative externality, or effect on the environment.) The cost of the produced energy is more than just the rate charged by the company, as society must bear the costs of a polluted river and the effects of that action.

While marginal social cost represents a powerful economic principle, it can rarely be expressed in tangible dollars. We know that there are costs incurred by certain acts of production, although their far-reaching effects make them difficult to quantify. The theory helps legislators and economists come up with a framework to "incentivize" companies to reduce the marginal social costs of their actions.

RELATED TERMS
  1. Utilitarianism

    A philosophy that bases the moral worth of an action upon the ...
  2. Externality

    A consequence of an economic activity that is experienced by ...
  3. Social Good

    A good or service that benefits the largest number of people ...
  4. Marginalism

    The study of marginal theories and relationships within economics. ...
  5. Macroeconomics

    The field of economics that studies the behavior of the aggregate ...
  6. Welfare Economics

    A branch of economics that focuses on the optimal allocation ...
RELATED FAQS
  1. Are marginal costs fixed or variable costs?

    Marginal costs are a function of both fixed and variable costs. Fixed costs of production are considered the costs that occur ... Read Full Answer >>
  2. How did the Soviet economic system affect consumer goods?

    The now-defunct Soviet Union was not a good place for its citizens, who suffered from chronic shortages of consumer goods. ... Read Full Answer >>
  3. What are the main differences between a mixed economic system and pure capitalism?

    A mixed economy is one in which the government does not own all of the means of production, but government interests may ... Read Full Answer >>
  4. What does a positive capital account balance mean?

    A positive capital account balance indicates that more money is flowing into, rather than out of, a country. A country's ... Read Full Answer >>
  5. What does a negative balance in the capital account mean?

    A negative capital account balance indicates a predominant money flow outbound from a country to other countries. The implication ... Read Full Answer >>
  6. How can a change in fiscal policy have a multiplier effect on the economy?

    A change in fiscal policy has a multiplier effect on the economy because fiscal policy affects spending, consumption and ... Read Full Answer >>
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Personal Finance

    Go Green With Socially Responsible Investing

    Find out how morals and ethics can bring you a surprising return.
  3. Investing Basics

    Sinful Investing: Is It For You?

    Sin stocks may seen outright undesirable to some, but these "naughty" industries bring stable returns - even in hard times.
  4. Mutual Funds & ETFs

    Socially Responsible Mutual Funds

    It is possible to avoid unethical investments and still profit from mutual funds. Find out how!
  5. Economics

    Fiscal Vs. Monetary Policy Pros & Cons

    When it comes to influencing macroeconomic outcomes, governments have typically relied on one of two primary courses of action: monetary policy and fiscal policy.
  6. Economics

    How Is The GDP Of India Calculated?

    India is a front-runner among developing economies. Investopedia explains how India calculates its GDP, an indicator of economic health and performance.
  7. Economics

    Explaining Marginal Propensity to Consume

    The marginal propensity to consume is a measure of how much consumption changes when income changes.
  8. Economics

    Explaining the Value Chain

    A model of how businesses receive raw materials as input, add value to the raw materials, and sell finished products to customers.
  9. Fundamental Analysis

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.
  10. Economics

    What is Productivity?

    Productivity is an economic term describing the relationship between outputs as compared to inputs needed to produce those outputs.

You May Also Like

Hot Definitions
  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. This is also referred to ...
  2. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  3. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  4. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  5. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
Trading Center