Definition: The Implicit Cost, also called as Imputed Cost is the implied cost that does not take a form of cash outlay, and neither is recorded in the books of accounts. The opportunity cost is the important example of implicit cost wherein the expected returns from the second best alternative action is foregone while pursuing a certain action. The implicit or imputed cost … [Read more...] about Implicit Cost
Explicit Cost
Definition: The Explicit cost, also called as Actual Cost is the cost actually incurred by the firm for making all the physical payments and the contractual obligations. The physical payments include the cost of material, labor, plant, equipment, building, technology, advertisement, etc. Thus, all the money expenses recorded in the books of accounts are, for practical … [Read more...] about Explicit Cost
Full Cost
Definition: The Full Cost is the total cost incurred in production and is comprised of business cost, opportunity cost, and normal profit. The business cost is the overall cost incurred to carry out the business operations. While the opportunity cost is the returns expected from the second best use of the scarce resources. The normal profit is the minimum earning that the … [Read more...] about Full Cost
Business Cost
Definition: The Business Cost includes all the costs (fixed, variable, direct, indirect) incurred in carrying out the operations of the business. It is similar to the real or actual costs that include all the payments and contractual obligations along with the book cost of depreciation on both the plant and equipment. The firms compute their business cost to determine the … [Read more...] about Business Cost
Opportunity Cost
Definition: The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land, labor, capital, etc. In other words, the opportunity cost is the opportunity lost due to limited resources. Every firm or individual has limited resources, having alternative uses with varied … [Read more...] about Opportunity Cost
Cost Analysis
Definition: In economics, the Cost Analysis refers to the measure of the cost - output relationship, i.e. the economists are concerned with determining the cost incurred in hiring the inputs and how well these can be re-arranged to increase the productivity (output) of the firm. In other words, the cost analysis is concerned with determining money value of inputs (labor, raw … [Read more...] about Cost Analysis
Exceptions to the Law of Demand
Definition: There are certain situations where the law of demand does not apply or becomes ineffective, i.e. with a fall in the price the demand falls and with the rise in price the demand rises are called as the exceptions to the law of demand. Exceptions to the Law of Demand Giffen Goods: Giffen goods are the inferior goods whose demand increases with the … [Read more...] about Exceptions to the Law of Demand
Reasons for Law of Demand
Definition: The Law of Demand explains the downward slope of the demand curve, which posits that as the price falls the quantity demanded increases and as the price rise, the quantity demanded decreases, other things remaining unchanged. There are several factors that explain why the demand curve slopes downward or why the law of demand showing an inverse relation between … [Read more...] about Reasons for Law of Demand
Budget Line
Definition: The Budget Line, also called as Budget Constraint shows all the combinations of two commodities that a consumer can afford at given market prices and within the particular income level. We know that the higher the indifference curve, the higher is the utility, and thus, utility maximizing consumer will strive to reach the highest possible Indifference curve. But, … [Read more...] about Budget Line
Marginal Rate of Substitution
Definition: The Marginal Rate of Substitution refers to the rate at which the consumer substitutes one commodity for another in such a way that the total utility (satisfaction) remains the same. In other words, the marginal rate of substitution between two commodities, let's say X and Y can be defined as the quantity of X required to replace one unit of Y or quantity of Y … [Read more...] about Marginal Rate of Substitution