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Private costs are simply the costs that are incurred when a buyer buys from a seller. They are to be contrasted with social costs, which are costs that are borne by people not involved in the transaction. Therefore, you can think of this question as asking you "what are three things that cigarette makers need to pay for?" Three such things are:
- The tobacco that goes into the cigarettes.
- The paper used to wrap the cigarettes.
- The wages of the workers who produce the cigarettes.
These are all private costs because they are actual payments made to producers of goods and services needed to make cigarettes.
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