Search results
- Economic Cost looks at the gains and losses of one course of action versus another. It does this in terms of time, money, as well as resources. The term also includes determining the gains and losses that might have occurred by taking another course of action.
marketbusinessnews.com › financial-glossary › economic-costWhat is economic cost? Definition, comparisons, and examples
cost. That cost of job loss depends on how much they were earning in their job, how long it takes them to find a new job, the level of unemployment benefits they are entitled to, and the level of their pay in the new job. The higher the cost of job loss, the more employers will be able to threaten and discipline their workers.
- 117KB
- 24
People also ask
What does cost mean in economics?
What are the different types of costs in economics?
What does price mean in economics?
What is a variable cost?
- Overview
- How costs are measured
- Other costs
economics
Written byDoug Ashburn
Doug Ashburn
Doug is a Chartered Alternative Investment Analyst who spent more than 20 years as a derivatives market maker and asset manager before “reincarnating” as a financial media professional a decade ago.
Fact-checked byThe Editors of Encyclopaedia Britannica
The Editors of Encyclopaedia Britannica
Consider the case of a bicycle manufacturer. Suppose, on a given day, the cost of all the bike components, the use of the tools and machinery, the lease on its buildings, and all the labor used to produce bicycles, totals $12,900. On that day the manufacturer produces 100 bicycles.
Here are several ways in which economists and accountants might measure cost:
Total cost and average cost. The total cost—that is, the overall amount spent to make a certain amount of product—is $12,900. To get the average cost per bicycle, divide the total cost ($12,900) by the number of bicycles made (100). The average cost would be $129.
Fixed and variable costs. Some costs—like the cost of rent or heavy machinery—don’t change based on how many bicycles are produced. These are called fixed costs. Other costs, like labor and raw materials, can increase or decrease depending on how much is produced. These are called variable costs.
So if an hourly employee doesn’t report for work one day, the variable costs might be lower, but the fixed costs would be the same. Most likely, the day’s output would be fewer than 100 bicycles; the total cost would be lower as well, but the average cost per bicycle produced would be higher because of the fixed costs.
Marginal cost. Another important idea in economic analysis is marginal cost, or the extra cost of producing an additional unit. A business that wants to maximize its profit will continue making products until the cost of making an additional unit (marginal cost) equals the additional profit from selling it (marginal revenue).
Opportunity cost. Whenever you choose to spend money on a good or a service, you’re also choosing not to spend that money on something else. Opportunity cost is the value of other goods, services, or activities you give up when you choose one investment or activity over another.
For example, if you were to splurge on a Mediterranean cruise, the opportunity cost might be a new car that you were saving up to buy. If you buy shares of stock, your opportunity cost might be the guaranteed interest you’d receive on a certificate of deposit. If the bicycle manufacturer was trying to choose between making bicycles and skateboards, the opportunity cost of making bicycles would be the revenue they could receive from making skateboards instead.
Opportunity cost is how we measure one expenditure over another.
Externalities. Another aspect of cost concerns externalities, or costs imposed on others—intentionally or unintentionally. For example, the cost of generating electricity by burning high-sulfur coal may go beyond the price and transportation of coal and the fixed and variable costs of operating the power plant. Externalities include the costs associated with air pollution, such as medical costs, reduced productivity due to poor air quality, and damage to crops and farmland.
Jun 15, 2019 · A list and definition of different types of economic costs - fixed, variable, total, marginal, sunk, accounting, opportunity cost. Diagrams and examples
Searches related to define cost in economics terms and phrases
This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.
Mar 22, 2024 · Definition of Economic Cost. Economic cost refers to the total cost of choosing one action over another. This concept encompasses not only the direct financial costs (explicit costs) but also the indirect costs (implicit costs) associated with the opportunity of the next best alternative foregone.
May 5, 2022 · You don’t have to be an economist-in-training to benefit from knowing some economic terms and concepts. Explore this laypersons’ list of basic economic terms and definitions to expand your vocabulary and deepen your understanding of key economic indicators.
Jun 27, 2024 · Costs play a crucial role in the production process and they significantly influence the profitability, resource allocation, and pricing strategy of a firm. In this post, we will discuss the main types of costs in economics, such as fixed costs, variable costs, sunk costs, and opportunity costs, among others. 1.
