Question

Differentiate MEC and MCE and give examples of each. Is MCE a private or a public cost? Explain

Answer 1

MEC is the marginal external cost. It is the additional cost other than cost of production incurred to the society due to production of an output. This is also called per unit negative externality.

MCE on the other hand is the marginal cost of abatement. This is the cost incurred by government to reduce externality creating activities.

MCE is a public cost because the government bears the cost of abating such externality creating activities which is recovered from public only in the form of taxes.