Social cost refers to the total cost to society resulting from an economic activity. This includes both the private costs incurred by individuals or businesses and any external costs that affect others, such as pollution or health issues. For example, when a factory produces goods, it may generate profits for its owners but also contribute to environmental damage that impacts the community. Understanding social cost is important for policymakers, as it helps them evaluate the true impact of decisions. By considering social costs, they can implement regulations or taxes that encourage businesses to reduce negative effects on society, ultimately leading to better outcomes for everyone involved.