Social cost refers to the total cost to society resulting from an economic activity, including both private costs and external costs. Private costs are incurred by individuals or businesses directly involved in the activity, while external costs affect third parties who are not directly involved. For example, pollution from a factory may harm the health of nearby residents, representing an external cost that is not reflected in the factory's production expenses. Understanding social cost is important for policymakers when evaluating the impact of regulations and taxes. By considering social costs, governments can create policies that promote activities with lower overall societal impacts, such as investing in renewable energy sources like solar power or wind energy, which can reduce negative externalities associated with fossil fuels.