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The existence of external benefit and external cost leads to misallocation of resources. External cost For example, when drivers are not liable for the health damage of car exhaust, drivers will equate only marginal private cost with marginal benefit. But if drivers are forced to pay for the health damage of car exhaust, their marginal cost will go up by the amount of the external cost.
1 Implicit Cost is the opportunity cost, which is incurred when the entity uses the ownerâs resources like capital inventory etc. 2  Explicit Cost is also known as out-of-pocket cost while Implicit costs are known as imputed cost.