Private benefit and social benefit:

Bridge the gab between private cost and social cost, and private benefit and social benefit.Under perfect market, there may be a divergence between social and private cost on one hand and social and private benefit on the other. This occurs as a result of the existence of externalities (benefits provided to or costs imposed on third parties as a result of the production or consumption of goods or services). Because of external benefits many projects which are needed may not be profitable under pure market system in which all investment decisions are left to the private individuals. The level of investment may fall below the social optimum because private investors ignore external benefits and supplementary benefits of projects in calculating the prospective returns of their investment.