(Answered) An external effect that generates costs to a third party is calledGroup of answer…

➤ Why is it important to distinguish marginal private cost and marginal social cost?
Distinguishing marginal private cost (MPC) from marginal social cost (MSC) shows how external costs alter optimal production. When MSC exceeds MPC, firms overproduce relative to the social optimum. This gap creates deadweight loss and justifies policies like Pigouvian taxes, regulation, or property rights to align private incentives with societal welfare.