A Level Economics AQA Practice Exam

Which of the following is NOT a direct component of social costs?

1. Private costs

2. External costs

3. Government spending

4. Social benefits

The correct answer is: Government spending

Government spending is not a direct component of social costs. Social costs typically include both private costs and external costs associated with an economic activity. Private costs are the costs that individuals or businesses incur when they produce goods or services, while external costs refer to the costs that affect third parties who are not directly involved in the transaction, such as environmental damage or health impacts. Together, these costs help to capture the full societal impact of economic activities. Social benefits, on the other hand, are related to the positive effects that an economic activity can have on society, which also shows how this choice diverges from the definition of social costs. Thus, government spending, while it can influence social costs and benefits through policy measures and allocation of resources, is not a direct component in the calculation of social costs themselves.