External Cost: An external cost refers to the costs incurred by third parties due to economic activities such as pollution or noise.
Marginal Social Cost (MSC): MSC represents both private costs and external costs associated with producing one additional unit of output. It includes all costs borne by society.
Pigouvian Tax/Subsidy: A Pigouvian tax is levied on producers who generate negative externalities while a Pigouvian subsidy is provided for activities that create positive externalities. These measures aim to internalize the external costs or benefits.