Thursday, May 26, 2022

Economic Cost Vs. Accounting Cost

This presentation provides a perspective on economic cost now let us examine these two concepts economic cost and cost in accounting called accounting cost now let us examine one by one with various trade-offs we have in mind consider a trade-off between higher education and job now if a student college student graduate prefers higher .

Education then the economic cost of the decision is foregone salary from the job whereas the accounting cost of higher education is the actual money spent on tuition hostel textbook etc take another example the trade-off between say gun and bridges now if the country chooses guns then the economic cost of gun is the foregone benefit of predators .

Foregone benefit of bilges whereas if the countries chooses if it is accounting then it is called money spent on manufacturing guns so these are totally different perspectives now if you look at the third example someone chooses between let us say cricket match and overtime work now the cost of choosing cricket .

According to economics is the loss of wartime wages according to accounting cost it is the money spent on cricket spent on ticket to gain entry into the let's say if person watches cricket at home on the TV then his accounting cost is equal to zero but still his economic cost is not equal to zero he still loses his wages so it is not .

Necessary that if accounting cost is zero economic cost has to be zero very rarely only in case of free goods the opportunity cost is zero otherwise any trade of a making life has opportunity cost or economic cost now if household choose a scar over house then choosing car the economic cost is foregone benefit of horse .

Whereas the accounting cost is the actual money spent on using car so if you look at left hand side on the right hand side the left hand side is what we call opportunity cost it is defined as the benefit from the next best alternative is forgot accounting cost is the actual dollar or rupee amount spent

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