In economics, costs include

In economics, costs include

• A. Both cash and non-cash expenses
• B. Only cash expenses
• C. Only non-cash expenses
• D. Neither cash nor non-cash

Answer: (A)

Costs in economics are not limited to money that changes hands. They include the resources sacrificed to produce a good or service, which covers both cash payments and the value of resources used that don’t require an immediate cash outlay. The cash portion, known as explicit costs, includes wages, rent, utilities, and other payments to others. The non-cash portion, known as implicit costs, is the opportunity cost of using resources you already own—such as the owner’s time or the foregone return from using capital in its next best alternative. Because economic cost equals explicit costs plus implicit costs, the full concept of costs encompasses both cash and non-cash expenses. The other options fail because they omit one or both types of costs.

Costs in economics are not limited to money that changes hands. They include the resources sacrificed to produce a good or service, which covers both cash payments and the value of resources used that don’t require an immediate cash outlay. The cash portion, known as explicit costs, includes wages, rent, utilities, and other payments to others. The non-cash portion, known as implicit costs, is the opportunity cost of using resources you already own—such as the owner’s time or the foregone return from using capital in its next best alternative. Because economic cost equals explicit costs plus implicit costs, the full concept of costs encompasses both cash and non-cash expenses. The other options fail because they omit one or both types of costs.