<p>Remember that the M in MSB standard for marginal. In other words, the marginal social benefit is the <strong>extra</strong> benefit we would get by increasing the activity by one unit and the marginal social cost is the <strong>extra</strong> cost we would get by increasing the activity by one unit.</p>

<p>Suppose, at the status quo, the MSB is 5 and the MSC is 3 (so MSB > MSC). That means if we increased the activity by one unit we would get 5 units of extra benefit and 3 units of extra cost, so the net change in welfare is $5-3=+2$. Thus, the status quo can't be optimal because we could increase welfare by adding an extra unit of the activity.</p>

<p>Suppose, at the status quo, the MSB is 3 and the MSC is 5 (so MSB &lt; MSC). That means if we reduce the activity by one unit we would loose 3 units of benefit but save 5 units of cost, so the net change in welfare is $-3+5=+2$. Thus, the status quo can't be optimal because we could increase welfare by reducing the activity by one unit.</p>

<p>Only if MSB=MSC is it the case that we can't increase welfare by either increasing or reducing the activity.</p>

CC BY-SA 3.0
2017-03-22T18:43:16.570Z
2017-03-22T18:43:16.570Z
Ubiquitous
<p>Why do economists want Marginal Social Benefit to equal Marginal Social Cost not be greater than?</p>

<macroeconomics>
Why do we want MSB = MSC not MSB > MSC?
Ben
# Why do we want MSB = MSC not MSB > MSC?

(Asked by: username_0 on 2017-03-22)

Why do economists want Marginal Social Benefit to equal Marginal Social Cost not be greater than?

**Tags:** macroeconomics


---

## 1 answers

### Answer by username_1 on 2017-03-22. Score: 4 | Accepted answer

Remember that the M in MSB standard for marginal. In other words, the marginal social benefit is the **extra** benefit we would get by increasing the activity by one unit and the marginal social cost is the **extra** cost we would get by increasing the activity by one unit.

Suppose, at the status quo, the MSB is 5 and the MSC is 3 (so MSB > MSC). That means if we increased the activity by one unit we would get 5 units of extra benefit and 3 units of extra cost, so the net change in welfare is $5-3=+2$. Thus, the status quo can't be optimal because we could increase welfare by adding an extra unit of the activity.

Suppose, at the status quo, the MSB is 3 and the MSC is 5 (so MSB < MSC). That means if we reduce the activity by one unit we would loose 3 units of benefit but save 5 units of cost, so the net change in welfare is $-3+5=+2$. Thus, the status quo can't be optimal because we could increase welfare by reducing the activity by one unit.

Only if MSB=MSC is it the case that we can't increase welfare by either increasing or reducing the activity.


---

