Social optimum
Definition. The social optimum is the level of output that maximises society net welfare, achieved where marginal social benefit equals marginal social cost. At this allocatively efficient point, all units for which benefit to society exceeds the cost to society are produced, and no more.
Where externalities exist, the free market quantity diverges from the social optimum, creating a deadweight welfare loss. Government intervention such as taxes, subsidies, or regulation aims to move output towards this point.
This term belongs to Allocative Efficiency and Market Failure in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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