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Social cost is higher than economic cost because
society is bigger than economy
society includes polity, while economy does not include it
cost borne by bystanders is positive
society includes both consumers and producers
- Option 1: Society is bigger than economy - This is not directly related to the concept of cost.
- Option 2: Society includes polity, while economy does not include it - The presence of polity doesn't directly influence the comparison between social and economic costs.
- Option 3: Cost borne by bystanders is positive - This is correct because social cost includes externalities, which are costs not accounted for in purely economic transactions, like pollution or other negative effects impacting third parties.
- Option 4: Society includes both consumers and producers - While true, it doesn't explain the difference in costs between social and economic perspectives.
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