In order to protect the quality of its nearby water resources, a community places a restriction on any housing development closer than 100 feet to a wetland

Ans) Social costs are positive or negative impacts on the society due to the activities carried out by companies. These are costs including private costs undertaken by companies and external costs undertaken by the society not involved in the production process.

This regulation of restricting housing development closer than a hundred feet to a wetland may bring several social costs.

- It will cause a reduction in employment generation as fewer workforce is required for a smaller project. Fewer employment opportunities will result in a reduction in jobs causing a reduction in the income of the society. Lower income results in lower demand causing reduction in production of goods and services

- It will also result in an increase in the cost of production of goods and services as there will be a requirement to invest more on recycling and adopting cleaner and more efficient modes of producing the same product with less pollution. This has a positive impact on the environment but a negative impact on the financial budget of the company.

- It will result in a reduction in injury and harm to human health, destruction of wildlife and its habitat, destruction of property, increase in recreation and restoration. Access to cleaner water bodies will become possible due to this regulation.

- When drawing a graph considering that there is no effect on the society not involved in these transactions i.e no externalities, private costs would be the same as external costs, so the graph showing private costs would represent all social costs. However, since externalities do exist the private cost graph does not show social cost.