Final answer:
Explicit costs are out-of-pocket expenses like wages and rent, while implicit costs are the opportunity costs of resources a firm already owns. Externalities affect third parties without being reflected in prices. Private costs are borne by the firm, while social costs also include externalities.
Step-by-step explanation:
In economics, costs are categorized into two types: explicit costs and implicit costs. Explicit costs are direct, out-of-pocket expenses that a firm incurs for its operations, such as wages and rent. In contrast, implicit costs are the opportunity costs of using resources that a firm already owns. This could include the owner's time or the use of a space that could have been rented out. An interest payment on a loan would be an explicit cost because it's a tangible payment made by the firm.
An externality is a consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices, such as pollution. A positive externality could be the education of an individual that benefits society, while a negative externality could be the pollution emitted by a factory that affects the health of nearby residents. The difference between private costs and social costs is that private costs are borne by the firm or individual making a decision, while social costs include both private costs and any externalities. When environmental regulations are absent, a firm's supply curve is likely to reflect only private costs rather than including externalities.