Distinguishing private costs from external benefits in economic decisions Steps: - Analyze the decision: upgrading to bigger aircraft increases capacity, spreading fixed costs like fuel and catering over more passengers. - Define private cost: direct expense to involved parties, such as higher fares paid by passengers to cover upgrade costs. - Define external benefit: positive spillover to uninvolved parties, such as reduced CO2 emissions benefiting the environment and society. - Evaluate choices: select pair where first is private cost and second is external benefit. Why A is correct: - Higher fares are a private cost to passengers (direct market transaction), while lower CO2 is an external benefit (positive externality not captured in airline's private calculations, per economic externality theory). Why the others are wrong: - B: Bigger aircraft describes the upgrade action, not a cost/benefit pair; higher fares is private but lacks external benefit. - C: Less catering waste is a private benefit to the airline (internal savings); bigger aircraft is the method, not a benefit. - D: Both items are benefits (external and private), ignoring the required private cost. …