Social Costs

Definition

Social costs refer to the negative effects or consequences imposed on society as a whole due to an economic activity. These costs can include pollution, congestion, depletion of resources, and other harmful impacts on people's well-being.

Analogy

Imagine you live near a factory that emits toxic fumes into the air. The social cost is that everyone in your community suffers from increased health problems due to pollution.

Related terms

Private Costs: Private costs are the individual expenses or sacrifices incurred by individuals or firms when engaging in an economic activity.

Marginal Social Cost: Marginal social cost refers to the additional cost imposed on society as a whole from producing one more unit of a good or service.

Negative Externalities: Negative externalities occur when the production or consumption of a good or service imposes costs on third parties who are not directly involved in the transaction.