Marginal Social Cost - MSC

The cool thing about economics is that it takes into account all social costs (and benefits for that matter)...not just the ones recorded on firms’ balance sheets. The marginal social cost (MSC) is marginal private cost (MPC) plus the marginal external cost (MEC).

The MPC is the marginal cost that a firm pays cash-money to make one more unit of a good or service (ergo the “marginal”). The MEC is the cost that producing that same unit of a good or service has that’s an externality (which can be positive or negative) on society. MSC is both MPC and MEC, showing the total marginal cost of society for the production of one more unit of a...something.

Take a ring pop factory, for example. They have their costs. Mostly white sugar and plastic to make their ring pops. But all the ring pops leave those plastic bits with a bit of sugar on them, which leads to wildlife deaths. Yep, that’s the (negative, in this case) MEC. Oof. The MSC would include both the firm’s production costs for one more ring pop, as well as the wildlife deaths from production of one more pop.