Which statement about costs is true in economics?

Which statement about costs is true in economics?

• A. Cash and non-cash expenses
• B. Only cash outlays
• C. Only opportunity costs
• D. Only sunk costs

Answer: (A)

Costs in economics reflect sacrifices of resources to obtain a benefit, not just money spent. That means both cash outlays and non-cash sacrifices count as costs. Explicit costs are the actual cash payments, like fertilizer or fuel. Implicit costs are non-cash sacrifices such as the value of your own time or the foregone use of a resource you own (opportunity costs, including depreciation and the rent you could have earned if you used land differently). Decision-making focuses on these total costs, especially marginal and opportunity costs, rather than just cash payments. Sunk costs, while real past expenditures, should not steer future choices. That’s why the statement that costs include cash and non-cash expenses best captures what economists mean by cost.

Costs in economics reflect sacrifices of resources to obtain a benefit, not just money spent. That means both cash outlays and non-cash sacrifices count as costs. Explicit costs are the actual cash payments, like fertilizer or fuel. Implicit costs are non-cash sacrifices such as the value of your own time or the foregone use of a resource you own (opportunity costs, including depreciation and the rent you could have earned if you used land differently). Decision-making focuses on these total costs, especially marginal and opportunity costs, rather than just cash payments. Sunk costs, while real past expenditures, should not steer future choices. That’s why the statement that costs include cash and non-cash expenses best captures what economists mean by cost.