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. Welfare Economics

    A branch of economics that focuses on the optimal allocation ...
  2. Externality

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

    The field of economics that studies the behavior of the aggregate ...
  4. Socially Responsible Investment ...

    An investment that is considered socially responsible because ...
  5. Social Responsibility

    The idea that companies should embrace its social responsibilities ...
  6. True Cost Economics

    An economic model that seeks to include the cost of negative ...
Related Articles
  1. Go Green With Socially Responsible Investing
    Personal Finance

    Go Green With Socially Responsible Investing

  2. Sinful Investing: Is It For You?
    Investing Basics

    Sinful Investing: Is It For You?

  3. Socially Responsible Mutual Funds
    Mutual Funds & ETFs

    Socially Responsible Mutual Funds

  4. Economics Basics
    Economics

    Economics Basics

comments powered by Disqus
Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  4. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center