The economic cost of a decision depends on both the cost of the alternative chosen and the benefit that the best alternative would have provided if chosen. Economic cost differs from accounting cost because it includes opportunity cost.
As an example, consider the economic cost of attending college. The accounting cost of attending college includes tuition, room and board, books, food, and other incidental expenditures while there. The opportunity cost of college also includes the salary or wage that otherwise could be earning during the period. So for the two to four years an individual spends in school, the opportunity cost includes the money that one could have been making at the best possible job. The economic cost of college is the accounting cost plus the opportunity cost.
Thus, if attending college has a direct cost of $20,000 dollars a year for four years, and the lost wages from not working during that period equals $25,000 dollars a year, then the total economic cost of going to college would be $180,000 dollars ($20,000 x 4 years + the interest of $20,000 for 4 years + $25,000 x 4 years).
Read more about Economic Cost: Components of Economic Costs
Famous quotes containing the words economic and/or cost:
“The Federated Republic of Europe—the United States of Europe—that is what must be. National autonomy no longer suffices. Economic evolution demands the abolition of national frontiers. If Europe is to remain split into national groups, then Imperialism will recommence its work. Only a Federated Republic of Europe can give peace to the world.”
—Leon Trotsky (1879–1940)
“[M]y conception of liberty does not permit an individual citizen or a group of citizens to commit acts of depredation against nature in such a way as to harm their neighbors and especially to harm the future generations of Americans. If many years ago we had had the necessary knowledge, and especially the necessary willingness on the part of the Federal Government, we would have saved a sum, a sum of money which has cost the taxpayers of America two billion dollars.”
—Franklin D. Roosevelt (1882–1945)