What are the private costs, private benefits, external costs, and external benefits of entering a holiday lights display contest?
Private costs: increased electric bill from the holiday lights
Private benefits: Winning the holiday lights display contest
External costs: Increased traffic congestion and Neighbors have difficulty parking on your street
External benefits: - (None)
Private Costs
Private cost is the cost borne by an individual or a firm caused by the production of a product or activity. In the case of entering a holiday lights display contest, the example of private cost is the increased electric bill from the holiday lights. This cost is primarily incurred by the house owner or participant of the contest.
Private Benefits
Private benefit refers to the benefit derived by an individual directly involved in a transaction or activity. In the context of the holiday lights display contest, the only person who will enjoy the benefit of winning is the contest participant. The victory is enjoyed exclusively by the winner.
External Costs
External costs or spillovers are costs incurred by unrelated parties or the environment due to a transaction or activity in which they are not directly involved. In this scenario, both increased traffic congestion and neighbors experiencing difficulty parking on the street are considered external costs. These issues arise as a result of the holiday lights display contest, impacting individuals who are not participating in the event directly.
External Benefits
External benefits refer to the benefits gained by unrelated parties or the environment due to a transaction or activity in which they are not directly involved. However, in this specific case, none of the examples provided can be categorized as external benefits.