Answer to Question #282308 in Economics for Matisha

Question

Explain briefly and give practical example on the following concepts. (3 points)

a) Explicit cist

b) Implicit cost

c) External cost

d) Social cost�

Answer 1

a) Explicit costs are out-of-pocket costs for a firm—for example, payments for wages and salaries, rent, or materials.

b) Implicit costs are a specific type of opportunity cost: the cost of resources already owned by the firm that could have been put to some other use.

c) An external cost is the cost incurred by an individual, firm or community as a result of an economic transaction which they are not directly involved in. External costs, also called 'spillovers' and 'third party costs' can arise from both production and consumption.

d) Social cost in neoclassical economics is the sum of the private costs resulting from a transaction and the costs imposed on the consumers as a consequence of being exposed to the transaction for which they are not compensated or charged.