The Social Cost is the cost related to the working of the firm but is not explicitly borne by the firm instead it is the cost to the society due to the production of a commodity.

1. Definition: The Social Cost is the cost related to the working of the firm but is not
explicitly borne by the firm instead it is the cost to the society due to the production of a
commodity. The social cost is used in the social cost-benefit analysis of the overall
impact of the operations of the business on the society as a whole and do not normally
figure in the business decisions.
The social cost includes both the private cost and the external cost. The external costs
are those costs which are directly related to the production and consumption of the
commodity but is not directly paid by the producer. These are the costs borne by the
society and therefore is called as the social cost.
Usually, the factories and mills located within the city cause pollution, both air, and
water. For example, Mathura Oil Refinery discharging its wastes into river Yamuna is
contaminating the water thereby causing the water pollution.
Thus, the social costs include:
 The cost of natural resources for which the firms are not required to pay, for example,
river, lake, atmosphere, etc.
 The use of public utility services such as roadways, drainage systems, etc.
 The cost of ‘disutility’ created through pollution (air, water, noise, and environment).
It is assumed that the disutility created through pollution is equal to the total private and
public expenditure incurred by the firm to safeguard the public from the health hazards
and social tension created by the production process. But however, these indicators,
total cost, and public expenditure, does not give a true measure of the public disutility or
the social cost.