Question

A chemical bathroom cleaner has an ingredient X that allows the cleaner to lather well and remove stains. The cost of producing a bottle of this bathroom cleaner is $3.60, but the bottle retails for $5.50. When consumers use the bathroom cleaner, the lather that gets washed down the drain escapes into the environment and releases allergens that cause respiratory problems for people. What is the social cost of a bottle of this cleaner?

Answer 1

The external cost is the full price of the bottle ($5.50) plus all the other external costs that are born by the people affected by the chemical.

These external costs are: the health costs because of the lower quality of life that the people with respiratory problems have, and the costs for the healthcare systems, due to an increasing number of patients.