Which of the following best describes social costs in the context of negative externalities?

Social costs refer to the total costs of an activity, including both the private costs incurred by the producer and any additional costs that affect society as a whole. In the context of negative externalities, these costs arise when a business or individual’s actions negatively impact others who are not directly involved in the transaction. For example, if a factory pollutes the air while producing goods, the factory owner bears the costs of production, but nearby residents suffer from health problems and reduced quality of life due to the pollution, which are social costs. Understanding social costs helps us see the broader impact of economic activities and why regulations may be necessary to protect public welfare. By accounting for these costs, we can work towards solutions that benefit both producers and the community.