A Level Economics AQA Practice Exam

What is included in social benefits?

1. Tax revenue generated by government

2. External benefits only

3. Private benefits only

4. External benefits plus private benefits

The correct answer is: External benefits plus private benefits

Social benefits refer to the total advantages that society gains from the consumption or production of a good or service. They encompass both external benefits and private benefits. Private benefits are the direct advantages that the individual or firm receives from their own consumption or production, such as income, satisfaction, or utility derived from goods or services. On the other hand, external benefits, or positive externalities, occur when the consumption or production of a good or service results in benefits to third parties who are not directly involved in the economic transaction. This could include things like improved public health from vaccinations or increased property values from a well-maintained park. By including both external benefits and private benefits, social benefits provide a more comprehensive understanding of the total impact of an economic activity on society. This holistic view is essential for policymakers to evaluate the overall effectiveness and need for intervention in markets that generate positive externalities. Focusing solely on private benefits or external benefits would give an incomplete picture, failing to account for the full range of benefits that affect societal wellbeing. Therefore, the inclusion of both aspects in the definition of social benefits is crucial for effective economic analysis and policy-making.