Marginal social cost : Marginal private cost :: Efficient market outcome : ?

The relationship between marginal social cost and marginal private cost helps us understand how externalities affect market outcomes. Marginal social cost includes not just the private cost that a producer pays, but also any additional costs that society bears due to the production or consumption of a good, like pollution. An efficient market outcome occurs when the price reflects all costs, including those external costs. Therefore, just as marginal social cost relates to marginal private cost, an efficient market outcome relates to the concept of social welfare maximization. For example, if a factory pollutes the air, the efficient outcome would be when the factory pays for the pollution it causes, leading to a price that reflects both its private costs and the societal costs of pollution.