Cost and benefits assignment
Hercules MTB launched its latest range of city gear cycles. The demand for these cycles has
spiked up. Hercules is making a lot of profits and so are the consumers benefiting from their
purchase. It not only helps them to travel shorter distances quicker but also it helps them to
stay fit. The car users have dropped and the city is witnessing a drop in the traffic and
pollution levels.
Define :
(i) Private cost- The private cost is any cost that a person or firm pays in order to buy or
produce goods and services. Ex: The driver of a car pays for the insurance, road tax, petrol
and cost of purchasing the car.
(ii)Private benefit- Private benefit is the benefit derived by an individual or firm directly
involved in a transaction as either buyer or seller. Ex: A car owner gains benefits of driving
the car and owning a means of private transport.
(iii)External cost- An external cost occurs when producing or consuming a good or service
imposes a cost (negative effect) upon a third party. Ex: A car driver does not pay for the cost
of air pollution created when driving the car.
(iv) External benefit- An external benefit occurs when producing or consuming a good
causes a benefit to a third party. Ex: The sight and smell of a well-kept garden gives pleasure
to the neighbour or a person walking past.
Identify:
(i) Private cost- “The demand for these cycles has