Cost
In economics, business, and accounting, a cost is a price paid, or otherwise associated with, a commercial event or economic transaction.
Types of costs
Several types of costs have been identified and labeled including:
Accounting and Opportunity costs
One important distinction is between accounting cost and opportunity cost (also called "economic cost"). The former is the total amount of money or goods expended in a endeavour. The latter is the value of the most valuable endeavour that had to be foregone in order to pursue the current endeavour--i.e., what could have been accomplished with the resources expended in the undertaking. If a person has a job offer that pays $25 for an hour's work, and instead chooses to take a nap, than the accounting cost of the nap is zero; the person did not hand over any money in order to nap. However, the economic cost is the $25 that could have been earned working. In theoretical economics, cost (used without qualification) often means opportunity cost.
Sunk and incremental costs
Another distinction is that between sunk costs, which are costs that have already been incurred and which cannot be recovered to any significant degree, and between incremental costs, which are the costs that will change due to the proposed course of action. In microeconomic theory, only incremental cost are relevant to a decision.
Private and Social costs
Another important distinction is between private cost and social cost; the former is the part of the cost paid by the purchaser of a good or service, while the latter is the part of the same cost paid by society at large. (See Externality.)
One technique in microeconomics is to analyze various costs incurred by consumers and others by type and category.
See also
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Referenced By
Economics articles (master list) | Liquid crystal on silicon | List of economics articles | List of economics topics | List of engineering topics | Transport economics
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