The costs borne by those directly consuming or producing a product are called

• A. Private Costs
• B. External Costs
• C. Social Costs
• D. Public Costs

Answer: (A)

Private costs are the costs borne by those directly consuming or producing a product. They include the payments and resources a buyer or a producer must use in making the transaction, such as the price paid by the consumer or the costs of inputs and labor faced by the firm. These costs influence decisions because each party weighs them when deciding how much to buy or produce.

External costs, by contrast, are placed on others who are not part of the transaction, like pollution affecting nearby residents. Social costs combine private costs with these external costs, giving the total burden on society. Public costs refer to costs borne by the government or public sector, which isn’t the concept described here.