Social Cost
Plain definition
Social cost is the total cost of an economic activity to society: the private cost borne by the producer plus the external cost borne by third parties.
In economics
Efficiency requires producing where marginal social benefit equals marginal social cost, not just marginal private cost. When external costs are ignored, markets overproduce; a Pigouvian tax equal to marginal external cost aligns private incentives with social cost.
Example
Driving a car has a private cost of fuel and wear, plus an external cost of congestion and emissions; the social cost is the sum of both.
Common confusion
Social cost does not mean a cost paid by the government; it means the full cost to all of society, whether or not any single party pays it.