What are Internal and External Costs to Economic Growth?
The production and consumption of all economic goods and services have both internal and external costs. The price a consumer pays for a car reflects the costs of the factory, raw materials, labor, marketing, shipping as well as mark up to allow a car company and its dealers to make a profit. After the car is purchased the buyer must pay for gasoline, maintenance, and repair. All these direct costs that are paid by the seller and the buyer of an economic good are called Internal Costs. Production, distribution and consumption also involve External Costs, also known as social costs or the loses that are not included in the market price. Extracting and processing minerals and other raw materials to produce a car depletes natural resources and energy, produces solid and hazardous wastes, disturbs the land, pollutes the air and water, depletes atmospheric ozone, and contributes to global warming, and reduces biodiversity and ecological integrity. These harmful effects are External Costs (E
