Praxis II: Economics Content Knowledge Exam Prep

Answer - C - The marginal social benefit (MSB) is obtained by adding the marginal private benefit to the marginal external benefit.

Key Takeaway: When any good is consumed or produced, there are always clear costs and benefits-sometimes public, sometimes private. When the costs or benefits are public, the spillover is experienced by people who are not directly involved with the consumption or production of a good. To determine the marginal social benefit of a good, use the equation: MSB = MPB + MEB (marginal private benefit + the marginal external benefit).