Summary
Social cost/benefit: sum of all private costs/benefit.
Social welfare analysis: involves optimising social outcomes
based on cost/benefit.
Optimal occurs: where marginal social cost (MSC) = marginal
social benefit (MSB)
Is used for: cost of economic choices, policies, initiatives,
etc.
Longer Explanation
Social cost-benefit analysis is also known as 'welfare analysis'
and is very similar to normal firm optimisation models.
Essentially, social cost and benefit usually involve a private
producer or consumer and a public provider or public demand. In
these cases, the private cost/benefit of the private actor differs
from the social cost/benefit. A social cost/benefit is simply the
sum of all costs and benefits of all private actors. Cost is
represented on a cost-quantity axis as a positively-sloped function
(linear or higher power) and benefit is a negatively-sloped
function. Their optimisation occurs where the derivatives of cost
and benefit (marginal social cost; marginal social benefit) are
equal. This point is where profit/social welfare is greatest.
