Discuss the private and social costs associated with the production of cars

Private costs are costs which are internal to the market function, and those affecting only the producer. Thus, private costs form the supply curve of the market, as they show the price at which the producer is willing to produce the goods; below such a price they would be unwilling to supply to the market. Hence such costs include the cost of production: building factories, buying raw materials and providing wages for employees. Private costs also include any legal costs to the producer. Social costs are those that accrue to the entire society, not only those involved in the transactions. The production of cars would bring about environmental damage through the production of carbon dioxide, other harmful gases and non-biodegradable waste. This reduces the quality of life across the world. This is not shown by the market diagram and instead a legal entity, such as a government, would have to impose taxes or subsidies in order to internalise the cost so that someone is paying for the damage.