Cost-benefit analysis question

Lidia asks:

“I would like to know if external benefits and costs are like advantages and disadvantages, but in a financial way? And that goes the same for social costs and benefits, except this it is not focused on financial way.
 
On p87, Act. 5.3 A question states that l should list external costs and benefits  from a case study. But when I checked at the back for the answer, it gave an answer that was about social c. and b. and NOT the external c. and b. Because I am still bit unsure about both of them l don’t know what to do and l they are totally different.”
Answer:
Yes, you are correct, we can consider external benefits and costs in the sense of being advantages and disadvantages. However, keep two things in mind here:
Firstly, the terms used are very specific and thus important to know well. If a question deals with external benefits, costs or cost-benefit analysis in general, then we must be careful to use these terms. An external benefit benefits society, not the business or any other entity. A business that chooses to locate in an economically disadvantaged area provides an external benefit since it is the surrounding community (specifically the potential workers) that directly benefit, i.e. the society. So yes, here we have an advantage, but not an advantage in general. It is an external benefit.
Secondly, these are finance-related as you mention. It’s important to remember that associating a specific number or value to these costs and benefits is not always straight-forward. As your textbook says, these are estimates; we could say that they are more qualitative than quantitative in nature.
To answer the second part of your question: yes, the same applies to social costs and benefits. Remember, this will also be considered in finance terms as we are dealing with a cost-benefit analysis.
Social costs = private costs + external costs
Social benefits = private benefits + external benefits
Cost-benefit analysis sums up social costs and benefits, and makes a recommendation based on which is greater.
 picture_cost_benefit_analysis
The answer to question (b) in activity 5.3 provides external costs and external benefits. These are also social costs and social benefits because – as you can see above – social costs and benefits include private costs and benefits as well as external costs and benefits. The answer provided in the textbook only offers the external costs and benefits, not the private ones as that is not questioned.
Image source: http://www.12manage.com/images/picture_cost_benefit_analysis.gif

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